Multiple Evidence: U.S. Crude Oil Demand Season Officially Opens

This past Memorial Day weekend, all signs, from busy U.S. airports to a surge in gasoline demand, confirmed oil market expectations of a surge in U.S. travel trips this summer.

As evidenced by the travel bonanza in the world’s largest oil consumer over the past few days, the U.S. has seen its highest level of travel since last spring when the new crown epidemic severely weakened consumption. This is good news for OPEC+, as a recovery in demand will fuel oil prices while they are gradually resuming production.

The recovery in the world’s No. 1 economy is crucial to consolidate confidence in the oil market, with WTI crude having risen to its highest level since 2018, after negative growth more than a year ago during the crash triggered by the new crown virus.

Michael Tran, capital markets analyst at Royal Bank of Canada (RBC), said.

“The cautious optimism in the oil market has shifted to full optimism. We all thought travel rates would increase this summer, and after Memorial Day passed, our summer began.”

That optimistic idea has been confirmed by some of the real-time data.

Descartes Labs said Tuesday that U.S. gasoline demand reached its highest level since the outbreak in the week before the long weekend, citing a survey developed by mobile devices. Meanwhile, passenger traffic at U.S. airports from Los Angeles to Houston and Atlanta reached their highest levels since early March 2020.

Data released Tuesday by the Transportation Security Administration showed that nearly 2 million passengers passed through airport security nationwide on Friday, a number that surpassed the last peak in U.S. travel before the outbreak.

In Houston, Augusto Bernal, a spokesman for George Bush International Airport, said the number of arriving and departing flights at the airport reached its highest level since the outbreak on Friday. Perry Cooper, a spokesman for Seattle-Tacoma International Airport, said the airport is expected to see more than 40,000 passengers a day once the data is entered, exceeding the peak of travel during the outbreak. Jennifer Ogunsola, spokeswoman for Atlanta’s Hustfield-Jackson International Airport, which has the highest number of passengers boarding in the United States, said.

“We expect to see the busiest holiday travel scenes since Christmas 2019. The anecdotal evidence is correct: it’s a busy weekend that marks a positive start to the summer travel season.”

Meanwhile, traders are showing a bullish outlook through key spreads, which are widening to the highest levels in years, with the premium between the December 2021 contract and the December 2022 contract for WTI crude reaching its highest level since the two futures began trading. This pattern, known as the “spot premium,” reflects expectations of a tightening supply-demand balance.

Data from the U.S. Commodity Futures Trading Commission showed that hedge funds increased their net long positions in WTI crude oil by 5.2 percent in the week ended May 25, reaching the highest level in three weeks.