Supply and Demand Factors Combined to Push Oil Prices Above $84

Analyst: This Canadian Energy Stock Has 40% Upside Potential
Published on: Jul 2, 2024

On Tuesday, WTI crude oil futures surged above $84 per barrel, potentially marking the highest closing price since April 16. Previously, oil prices had risen for the fourth consecutive week, driven by seasonal demand, record-breaking travel during the U.S. Independence Day holiday, geopolitical tensions in the Middle East, and disruptions to crude oil supply caused by the U.S. hurricane season.

Starting with demand, the American Automobile Association (AAA) predicts that 70.9 million people will travel at least 50 miles during the week of Independence Day, representing a 5% increase from 2023 and an 8% increase from 2019.

Paula Twidale, Senior Vice President of AAA Travel, stated that with the arrival of the busy summer travel season and the flexibility afforded by remote work, more Americans are opting for long-distance travel around Independence Day. They expect this year’s July 4th week to be the busiest in history, with 5.7 million more travelers compared to 2019.

From June 28 to July 7, a record 60.6 million people are expected to travel by car, an increase of 2.8 million from last year and significantly higher than the 55.3 million in 2019. Car rental giant Hertz Global Holdings (NYSE: HTZ) indicated that the cities with the highest car rental demand during the holiday week include Dallas, Denver, Salt Lake City, Los Angeles, and San Francisco. The busiest rental dates are expected to be Friday (June 28), Saturday (June 29), and Wednesday (July 3).

Air travel is also expected to set a record, with 5.74 million people flying to their Independence Day destinations, representing increases of 7% and 12% from last year and 2019, respectively. Domestic airfares have decreased by 2%, with an average round-trip ticket price of $800.

Lastly, the number of people traveling by bus, cruise, and train will exceed 4.6 million, a 9% increase from last year but slightly lower than the 4.79 million in 2019. Demand for cruises, especially those traveling to Alaska, is particularly strong, with Seattle and Anchorage being popular destinations.

Turning to supply, geopolitical tensions and hurricanes in the Caribbean have driven oil prices higher. ING commodity strategist Ewa Manthey stated that the ongoing conflict between Israel and Hamas increases the risk of disruptions to oil supply. Additionally, there have been recent reports that Hurricane Beryl is intensifying, raising the possibility of heavy rains affecting oil operations in the Gulf of Mexico later this week.

From a technical perspective, oil prices also appear bullish. David Morrison, Senior Market Analyst at Trade Nation, noted that crude oil prices have finally broken out of their recent consolidation range. For more than a week, Brent crude and WTI crude have been oscillating within a narrow range of less than $2. The front-month WTI has established a floor above $80, supported by the 100-day moving average.

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