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UBS is forecasting stronger demand for gasoline year-on-year in the United States this summer, coupled with lower gas prices compared to the same period. The bank noted that consumer “resiliency” and a rise in travel for the coming Memorial Day weekend would boost demand but prices would be below the $4.34 per gallon average price from Memorial Day in 2022.
Prices at the pump in the U.S. saw a national average of $3.561 on Wednesday, according to the AAA, up slightly from $3.532 a week ago, but down some 20% from the year-ago average of $4.598.
“Despite below-average US gasoline inventories, we believe the price of gasoline will be lower this summer than last,” UBS said.
The bank’s Chief Investment Office (CIO) cautioned that “upside risks” to gasoline prices remain, including geopolitical risks to supply and weather risks to oil supply and refining capacity, especially in hurricane season.
“All this considered, we expect gasoline prices for the summer of 2023 to average prices below a year ago, but as always we will be watching weather and US politics (and of course crude oil prices) for the risk of episodic price spikes,” the bank’s CIO noted.
Oil prices remain the biggest driver of gasoline prices in the U.S., accounting for some 55% of the price, according to UBS, which expects crude prices to move higher in the second half (after October) of this year as global supply tightens.
UBS recommends exposure to U.S. energy companies, due to the confluence of increasing demand for gasoline and jet fuel and higher crude oil prices.
“With rising gasoline and jet fuel demand this summer, our expectation for raising crude oil prices, and the always present seasonal weather risks, the beginning of the summer driving season is also a reminder to be sure any diversified equity portfolio includes exposure to US energy companies, including refiners, integrated oil, exploration and production, oil field services and energy infrastructure companies,” the UBS CIO said in a statement, noting attractive dividends, stock buybacks, low-to-zero debt, and positive free cash flow.
By Michael Kern for Oilprice.com
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Michael Kern is a newswriter and editor at Safehaven.com and Oilprice.com,