Here’s How The Tourism Industry Influences Oil And What To Expect In The Future
In the third week of April 2020, crude oil prices crashed to historic lows, with WTI Crude dropping to -$37 and Brent Crude dropping to $26. This decline was associated with low demand when oil producers had an oversupply of fossil fuel. In contrast, one barrel of crude oil cost roughly $70 at the start of 2017, highlighting the slippery slope that oil producers encountered.
Crude oil prices have since been on the path to recovery, with WTI Crude trading at $60.88 and Brent Crude at $64.22. However, the falling crude oil prices in the first half of 2020 represent an important lesson on the factors influencing crude oil prices, or more poignantly, the demand for oil.
Tourism and fuel
Tourism is one of those activities which one might not expect to have a major impact on the oil industry, but that is not entirely the case. In fact, its role might be bigger than anticipated. Let’s analyze the statistics to get a better idea. France is the most toured country globally, with just over 89 million tourists visiting the country in 2018.
Spain was the second most popular tourist destination with slightly over 82 million foreign visitors in 2018. The U.S had over 79 million visitors, while China had 52 million foreign tourists in the same year. The top 10 countries individually had more than 30 million tourists during the year. Imagine how many trips it takes to take more than 30 million people in and out of a country or even drive into the said country. Now imagine ten other countries having just as many tourists and commutes in and out.
Many other countries have foreign tourists who enter their boundaries mostly through airlines, which means that the airline industry is one of the biggest industries that have a symbiotic relationship with the tourism industry. From the looks of things, a lot of global traveling is largely influenced by tourism. The planes used by many people to travel in and out of their tourist destinations are powered by fuels made from oil.
What happens when tourism is disrupted at a massive scale and how does it influence the oil market
The coronavirus pandemic has managed to ruin many plans for many people. Lockdowns and other stay-at-home measures that were implemented in 2020 to curb the viral spread, meant people could not travel. Meanwhile, many countries closed their borders, and there were major consequences to the airline and tourism industries.
The decline in tourism also affected travel demand and, consequently, the demand for fuel. The impact of barely any tourism taking place was heavily felt by the oil industry because airlines, vehicles, and ships that facilitate tourism have to be fueled by oil products such as jet fuel.
Meanwhile, oil producers had not anticipated the impact of the coronavirus pandemic on the tourism industry. They were thus not aware of the huge implications it would have on oil prices. Naturally, oil mining takes place in remote areas, and so many oil producers did not foresee the pandemic becoming a major disruptor of their production and delivery activities. That became a massive oversight on their part because the subsequent economic shockwaves quickly caught up with them.
The demand for oil was so low at some point that WTI Crude prices went negative for the first time in history. What exacerbated the oil industry’s condition was that the pandemic’s effects were felt globally, so demand fell abruptly everywhere. To make matters worse, the failure to anticipate the effects of the pandemic meant they had continued producing oil when demand was getting low.
Many crude oil producers did not have adequate storage facilities, so they were eventually forced to halt their operations. The industry found itself with an oversupply of oil and low demand which inevitably resulted in low prices.
The future of both industries relative to each other
Many other industrial segments consume a lot of oil products, especially in the form of fuels. However, the airline industry stands out as one of the top contributors to carbon emissions. This means that tourism is one of the activities that indirectly facilitate heavy industrial carbon emissions. Right now, there is an ongoing transition from fossil fuels in the automotive industry. The latter, together with the airline industry, account for most of the carbon emissions.
The aggressive push towards renewable energy may quickly take place in the automotive industry, and the airline industry will also feel the pressure. Such changes highlight the eventual end of the fossil fuel age, but tourism and other travel reasons will continue to demand energy even if not in fossil fuel form.
Meanwhile, tourism will continue to exist in the future, assuming that the global pandemic is subdued. Tourism, business, and diplomatic reasons are enough to facilitate the demand for alternative sources to power planes, especially for long-range flight. This pursuit has already begun with Boeing and Airbus exploring their options.
Battery technology and fuel cell technology are currently the hottest contenders to replace oil. However, batteries seem to be winning over the automotive industry, but power density-to-weight ratio limitations are currently not in favor of heavier application in the automotive industry. Hydrogen fuel cell technology will likely dominate the airline industry if there are plans to attain zero carbon emissions status.
The relationship between oil and the tourism industry is deeply intertwined. The tourism industry’s impact is much more pronounced than most of us imagine, but the interesting thing is that it took a global pandemic for the world to realize just how deep that relationship goes. In a way, the entire period provided a good idea of just how big a role tourism plays in transportation and the demand for fuel.