The Impact Of Travel On The Supply And Demand Of Oil

impact of travel on supply and demand of oil crude barrel prices

Crude oil is used in the production of many things, including the fuels that keep the world moving, such as diesel, gasoline and even jet fuel. However, during the coronavirus pandemic, where travel restrictions and bans have grounded planes, and forced us to use our vehicles less, demand for oil has decreased significantly. 

As one of oil’s primary functions is in the production of fuel, an increase or decrease in travel can have a notable affect on its supply and demand. You can keep track of the fluctuations in oil prices and participate in commission free oil trading on Plus500, for example, utilising their various tools to speculate on the price movement of the commodity. For more information on the impact that travel has on oil’s supply and demand, keep reading. 

The Impact Of COVID-19 Travel Restrictions 

In order to limit the spread of COVID-19, countries have enforced national lockdowns, which meant that the majority of us have had to stay at home, only using our vehicles in cases of emergency, or to go to the shops. Furthermore, international travel for the most part, has been extremely limited, meaning that individuals could only leave the country under exceptional circumstances and subsequently, the vast majority of planes have been out of action for the last 12 months. 

As a result, the International Energy Agency (IEA) predicted, that as of April 2021, the demand for oil had decreased by approximately 30%, in comparison to its levels from the previous year. This placed producers in an extremely difficult position, inundated with a supply of crude oil, but having very little demand for it, meaning that they had to acquire additional storage units for the surplus oil. 

Oil supply has been a problematic area during the pandemic, as the Organization of the Petroleum Exporting Countries (OPEC) alliance — a coalition group containing the global giants of crude oil production — struggled to obtain a swift agreement to reduce production. This meant that the market was overwhelmed with a supply that there was no demand for. Once an agreement was eventually met, supply levels were almost quartered for the following two months. 

How Supply And Demand Affect Oil Prices 

Supply of oil is largely controlled by the OPEC, who can increase or decrease the production of the commodity depending on a variety of factors. Changes in supply, influenced by external factors like geopolitical events, for example, can dramatically affect the volatility of the market and subsequently, drive oil prices. When the OPEC produce more than the world requires, the commodity’s price will fall, to reflect the decrease in demand. 

Demand for oil is affected by a multitude of factors, and typically increases when countries’ economies are thriving and when there is an increase in travel. Travel can experience a seasonal influx, for example, during the summer months when more people choose to go away on holiday. Therefore, there will be an increased demand for oil, as more fuel, be-it jet-fuel or petroleum, will be used. 

The Effect Of Easing Restrictions 

As travel restrictions have been eased, the demand for gasoline, for example in the US and parts of Europe, has seen a welcome increase, and both Brent Crude Oil and West Texas Intermediate (WTI) have benefitted from this. The recovery of certain countries has been spurred by successful vaccination rollouts and economic recovery. 

However, the resurgence of gasoline demand has been stunted lately, due to the emergence of new strains of the virus in Asian countries, such as India and Japan, which has seen new restrictions be put in place, including travel bans.

Petrol Profits

An investment in oil can provide traders with some exciting opportunities to profit, by taking advantage of the high levels of volatility that is driven by external factors like a pandemic, a rise in unemployment rates, or a scheduled event in the economic calendar. All of these events can cause short-term changes in the market which traders can act upon accordingly. Since the market is so volatile, it’s important that you undertake extensive research into the commodity before opening a position on the market.

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