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Tuesday, 21 July 2020 21:00

Oil Prices Suppressed by Low Demand, How Auto Retail May React

Written by Jason Unrau, CBT Automotive Network

Index

American oil prices have rallied back from an all-time low of negative $37.63 per barrel for May futures on West Texas Intermediate (WTI) crude on April 20.

At that price, a seller would actually have to pay to have the buyer take their inventory---an unlikely scenario that would typically see sellers hold their product until the prices rebound.

 

Last week, the WTI crude index was up to $41.40 per barrel before it began to regress once again. At the opening bell July 20, WTI crude was down to $40.25 per barrel.

 

The price drop continues to reflect the decrease in demand for gasoline during the coronavirus pandemic. Fox Business is reporting usage remains below pre-pandemic consumption levels and demand is once again falling as infection rates are climbing. 

 

Relative Gas Prices

 

Regular-grade gasoline prices tanked to $1.66 per gallon in the final week of April when oil prices were at their lowest. In the subsequent weeks, the price has recovered and stabilized at around $2.11 per gallon on average, nationwide. At the same time last year, the price was $2.68 per gallon when WTI crude was at $60 per barrel.

 

Although gas prices don’t follow crude oil futures exactly, they give a relative indication for the future. With oil prices tightening up, it’s a fair assumption that fuel prices will follow suit, assuming oil continues to lose value. 

 

How It Affects the Economy

 

A Congressional Budget Office report highlighted the shift to smaller, more fuel-efficient passenger cars when oil prices and fuel prices were near or above $3 per gallon in periods from 2005 to 2008.

 

Especially when oil prices hold a trend for an extended period, consumer sentiment follows suit. When gas prices are high, people drive less and purchase more conservative models. And conversely, when fuel prices are low, consumers tend to drive more, buy more vehicles, and purchase larger, less fuel-efficient models.


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