Banks And Cities Want Everyone Back In The Office, And It Could Be An Unexpected Tailwind For Oil Demand

Oil demand has held up remarkably well despite many continuing to work from home post-COVID. Gasoline demand in the US rose by 1.7% last week and was 2.3% above the four-week average, according to GasBuddy. If trends continue you would expect to see gasoline demand eclipsing pre-COVID levels even without a major change in commuting patterns, due to several factors such as increased travel amongst retirees. A further tailwind to gasoline consumption could be a push by banks and governments to get people back in the office.

The alignment between several unique actors in getting people back downtown is largely due to commercial real estate trends. Between 2019 and 2021, the number of people working at home nearly tripled based on US census numbers. These are people that no longer travel downtown regularly. Low office occupancies will soon start flowing through to the tax base of major cities and impacting the commercial real estate loans of banks, particularly mid-sized banks which are already under pressure. A recent study by professors at Columbia and New York University had the value of US office buildings potentially falling by almost 40%. Examples of price declines have also been occurring publicly with recent office tower sales in San Francisco being pulled because offers came in so far below expected value. This drop in value is due to a combination of higher rates and lower occupancies.