The latest data from the U.S. Energy Information Administration showed that the average cost for Regular gasoline in America rose by four cents over the past week to $2.16 per gallon. That was the third increase in the past four weeks and the highest reading since mid-October. Regionally, the cheapest gas in the country as of this writing can be found in Mississippi, where a gallon of Regular costs just $1.82 on average, while residents of California as usual have to pay the most in the continental U.S. for Regular ($3.18/gallon). The above-mentioned prices are actually little-changed compared to this summer even though consumers are spending a lot less time on the road now due to the winter flare up in the coronavirus. Moreover, with the return of activity restrictions in several regions of the country as well as many Americans voluntarily opting to limit their commuting, recent supply pressures have been muted. Gasoline production, though, remains depressed so even a modest bounce back in demand could result in a spike at the pump.
An end to the pandemic would bring about such a rebound in highway traffic and hedge funds unsurprisingly responded to the barrage of vaccine candidates announced after the election by placing new long bets on crude oil (and energy in general) during each of the past four weeks. This could also mean that a smooth and timely vaccine rollout is being priced in as the base case, and therefore the recent run-up in energy prices may be vulnerable to any setback in the vaccination pipeline. However, even if widespread immunization takes longer than currently anticipated and Americans continue to limit their driving it does not necessarily mean that consumers will stop spending. We already saw lots of evidence of this earlier in 2020 during the blanket lockdown and subsequent surge in online commerce (Amazon). A recent Gallup poll even revealed that Americans still expect to spend an average of $852 on Christmas gifts this year, the highest reading since 2017. However, a separate Gallup survey suggests that a lot of this holiday cheer expressed by consumers hinges on the assumption that another relief check from the government is on the way: “As expected, Americans who report experiencing financial difficulties are particularly likely to say they will spend less this year, but their responses also differ according to whether they are asked this in light of a possible stimulus payment. Among U.S. adults who say they are ‘having to draw on savings’ or ‘running into debt,’42% say they will spend ‘much less’ if they receive no new assistance. Among those asked to assume they will receive a $1,200 payment, that figure drops to 33%.”
Sources: U.S. EIA, GasBuddy, Reuters, Gallup, FRBSL