Pent-up Demand Forecasted to Lead to Higher Fuel Prices in 2021 & 2022

8 Feb, 2021

Pent-up travel demand and expected economic recovery from the COVID-19 pandemic has forecasters calling for rising fuel prices over the next two years.

Charts and upward directed arrows against blue background The American Association of State Highway and Transportation Officials Journal reported on Jan. 29 that “after hitting a four-year low in 2020, the Energy Information Administration (EIA) predicts that retail prices for diesel and gasoline will increase in 2021 and 2022 as the U.S. economy recovers from the COVID-19 pandemic – fueling increased transportation demand.”

According to the EIA, fuel prices were at their lowest levels since 2016 with the national average of gasoline last year at $2.17 per gallon and diesel at $2.55 per gallon.

EIA is forecasting gasoline retail prices in 2021 to increase to an average of $2.42 per gallon and to $2.43 in 20222. Diesel prices are forecast to average $2.71 per gallon this year and $2.74 in 2022.

Fuel Price Recovery Will Take Time

Those fuel prices are still lower than before the COVID-19 pandemic started with gasoline prices starting 2019 at $2.50 per gallon and sitting at $2.38 in mid-March before the coronavirus crisis started. Gasoline prices plummeted all the way to an average of $1.77 per gallon on April 27, 2020 before starting a recovery.

“Responses to the COVID-19 pandemic resulted in widespread reductions in passenger travel and gasoline demand, contributing to lower gasoline prices across the United States,” the EIA reported in early January.

Lockdowns and stay-at-home orders in the second quarter 2020 left liquid fuels consumption at 16.1 million barrels per day, the lowest level for any quarter since 1986, according to the EIA Short-Term Energy Outlook.

The EIA report did strike a note caution saying fuel consumption remains “subject to heightened levels of uncertainty because responses to COVID-19 continue to evolve … Reduced economic activity and changes to consumer behavior in response to the COVID-19 pandemic caused energy demand and supply to decline in 2020. The ongoing pandemic and the success of vaccination programs will continue to affect energy use in the future.”

Vaccinations Have Americans Ready to Travel Again

Americans, especially those who can get vaccinations sooner than later, are preparing to hit the road in 2021.

Airbnb’s study “From Isolation to Connection: Travel in 2021” found that 54 percent of Americans have either booked travel, are planning travel or expect to travel this year.

“Americans are telling us they actually are planning to travel this year,” said Airbnb co-founder and CEO Brian Chesky, according to Travel Weekly. “But something's going to be different about how they travel. They want to get in cars and travel within a tank of gas, about 200 miles, typically staying in small communities with their friends and family. I think [we’ll see] a shift from mass travel to meaningful travel.”

AAA is estimating that most people will not start travelling until spring or possibly this summer.

"The COVID-19 vaccine does offer some promise and optimism for travel," said AAA’s Megan Cooper.

Travel marketing firm MMGY Global has coined the phrase “vaxications” for those trips that will be taken by those who receive the COVID-19 vaccinations.

MMGY Global CEO Clayton Reid told the Travel Pulse that “road trips will continue to be popular in 2021. They were the most popular type of travel this year and that will continue into the next with many travelers driving to beach and mountain resorts to escape in socially distanced ways.”

Economic Recovery for Fuel Rising Energy Use

The expected economic recovery from the COVID-19 pandemic should fuel rising energy use.

EIA says that HIS Markit forecasts that U.S. real gross domestic product will increase by 4.2 percent in 2021 and 3.8 percent in 2022 after falling 3.5 percent in 2020.

Total energy use in the U.S. fell 7.8 percent in 2020 but expected to rise, according to EIA, by 2.6 percent in 2021 and 2.5 percent in 2022.

According to Bloomberg, Bank of America says, “the economy is on much more solid footing than it was in the early days of the pandemic.”

Customer spending was up 9 percent in January from last year, Bank of America CEO Brian Moynihan told CNBC.

“The economy keeps moving forward and we feel very constructive about the consumer activity,” Moynihan said. “People are spending money, people are engaging in the economy differently” given virus restrictions, he said.

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