The oil market is starting the Biden era with a bang. And that means Covid-weary Americans returning to the roads this spring and summer will be greeted with higher prices at the pump.
US oil prices have skyrocketed 69% since November’s election based on Thursday’s close at $63.50 a barrel.
That’s easily the biggest post-election gain through this point in the presidential cycle since NYMEX oil futures began trading in 1983, according to a CNN Business analysis. The next closest post-election rally occurred when crude jumped 31% after President George H.W. Bush’s victory in 1988.
Gasoline prices are also on the rise, climbing 27% since the election, with the national average hitting $2.70 a gallon this week, according to AAA.
The monster gains in the energy market are not about politics or even policy. Rather, they underscore a growing sense that the worst of the deadly pandemic is in the rearview mirror — and the US economy is poised to roar back to life. Wall Street, backed by easy money from the Federal Reserve, is making a massive bet that Americans’ thirst for oil will rise dramatically.
“Higher oil prices are a reflection of optimism about economic growth as the world begins the process of vaccinations to move past the pandemic,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy.
In recent months, the United States has made major progress in defeating Covid. Both Pfizer and Moderna rolled out highly effective vaccines late last year, and after a sluggish start implementation has accelerated. The country could be just days away from getting access to the first single-shot vaccine.
And as more Americans get vaccinated, they can return to flying, taking road trips and cruises — which in turn will drive up oil demand crushed by the health crisis. Bank of America is predicting it will grow through 2023 at the fastest pace since the 1970s.
The pandemic, combined with a nasty price war between Saudi Arabia and Russia, caused the oil market’s darkest day ever last April. Crude crashed below zero, briefly touching negative $37 a barrel.
The GameStop factor
But just as that selloff was overblown, some fear the price slingshot might be getting out of hand.
“This looks a lot more like a financial rally than a fundamental one,” said Jim Mitchell, head of Americas oil analysts at Refinitiv. He estimated that US oil prices are $7 to $8 higher than where supply-demand dynamics suggest they should be.
Consider that US gasoline demand — the biggest driver for oil prices — hasn’t been this weak in February since 1997.
So why is oil overshooting fundamentals? Easy money on Wall Street is scrounging around for a home. Rock-bottom interest rates from the Fed are encouraging investors to bet on risky assets. Everything from Amazon and GameStop to bitcoin and SPACs are on fire. It only makes sense for oil to join the party — especially because crude is a way to bet on higher inflation.
“We’re riding the money flow higher. But if the…