The coronavirus pandemic has already destroyed oil demand growth. It has dented oil demand. It has sent oil and gas companies under. It has stymied exploration and production the world over, and triggered countless job losses, writedowns, and more.
And it’s not over yet. The pandemic is also set to upend the U.S. car market, in ways few saw coming.
We’ve heard a lot about what the work-from-home trend has done to oil demand—it has cut into gasoline demand as fewer workers commute. And we’re not even talking about the furloughed workers that don’t have anywhere to be just now.
Some are fretting about the possible permanency of this new trend. One such study claims that working from home and online shopping will become the new way of doing things—forever—shaving as many as 270 billion driving miles off the total every year, and 14 million cars off the road.
Others are looking at other possible ramifications of the work from home trend—one that could have an indirect—yet profound—effect on oil demand.
Goodbye Economy, Hello SUV
About a decade ago, the vehicle sales mix was a tie between passenger cars and light trucks—the latter of which includes both pickups and SUVs. One would think that since then, with all the climate consciousness lurking about, that mix would have changed to a more emissions-friendly ratio.
It has not.
To the contrary, light truck and SUV sales in the United States have grown as a percentage of total vehicle sales. This trend is now being exacerbated by the pandemic.
From about 50% in the early part of 2010, light truck and SUV sales in the United States grew to 78% by May of this year, according to data from the U.S. Bureau of Economic Analysis carried by Bloomberg Green.
And that 78% may not be truly representative of what consumers are really after, because there have been reports of inventory hiccups for trucks and SUVs. As Detroit News reported last month, one dealership in Texas reported that 90% of its sales are typically made up of trucks, but inventory has been a problem as plants shut down for months in the early days of the virus.
This could very well mean that the true demand for SUVs and trucks are higher than the figures show.
What this also means is that even after the pandemic, there will be way more SUV and trucks on the road to guzzle that gasoline than there will be smaller, more efficient vehicles.
And with the boom in online shopping and working from home, fewer people will need a personal automobile at all—but commercial trucks—bigger ones—will be in big demand.
But there’s more.
Not only are Americans favoring trucks and SUVs when it comes time to buy new ones, they are hanging onto old vehicles for longer, according to new data from IHS Markit.
The average age of cars and trucks are now at the highest level in 20 years, at 11.9 years, with IHS predicting that post-pandemic, that could rise to more than 12 years old.
Part of this is because people are putting fewer miles on their vehicles as they work from home, which means pushing back the replacement date.
This trend is expected to continue as banks extend loans to 80 and even 90-month loans for vehicles during the pandemic.
For oil demand, the outlook from this new trend is not clear. On the one hand, people are still working from home and therefore consuming less gasoline. On the other hand, what cars are left on the road are older, larger, less fuel-efficient ones that consume gasoline at a quicker rate.
Either way, the consumer has spoken: trucks and SUVs are in, and smaller, more efficient passenger cars are out. Hey—the heart wants what the heart wants.
Automakers, as they dip their toes into the EV markets, will respond accordingly to the appetite for trucks, even as a new anti-truck campaign tries desperately to get off the ground in its effort to make SUVs—Evs or no—out to be the newest social pariah, much like the high-fat diet, cigarettes, and crude oil, citing the jump in SUV and light truck sales as being responsible for an uptick in pedestrian deaths.
This has not assuaged auto manufacturers from focusing on trucks in the EV segment.
Regardless of exactly how it all shakes out with the automotive market and gasoline demand, the pandemic will forever change the two linked markets.