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Record-breaking Memorial Day gas prices sting consumers, impact travel

A gas station is seen as the average gasoline price hits a record high of $4.37 per gallon (about 3.8 liters) in Virginia, United States, May 10, 2022. Prices are claimed to gasoline vary by region.

Yasin Ozturk | Anadolu Agency | Getty Images

The Memorial Day holiday weekend marks the start of the summer driving season, and already drivers are limiting their trips due to record gas prices that are expected to rise further.

The national average for unleaded gasoline is now $4.599 per gallon, just below the record high of $4.60. It’s also a 40% increase so far this year and well above last year’s level of $3.04 per gallon, according to AAA. By the July 4 holiday, more states could see average prices above $5 a gallon, analysts say.

“I don’t think a lot of people are going to hit the road, and if they do, I think a good chunk is going to stay close to home,” said Patrick De Haan, head of oil analysis at GasBuddy. . “They should definitely be a noticeable bump, but I feel like people don’t drive that far. The problem is the high prices that bring people a little closer together. There is also working from home which has changed things. of people who can basically work off the road all the time. »

The upcoming holiday weekend is expected to be the busiest for travel in two years, but driving is still expected to be below 2019 levels. AAA expects a total of 39.2 million people to drive 50 miles or more this weekend, an increase of 8.3% over last year. Of that number, there are expected to be 4.6% more drivers on the road over the three-day weekend, but that number is still down 7.2% from 2019.

In the United States, prices vary widely, with a high average of $6.07 per gallon in California and $4.13 per gallon in Georgia. As high prices are impacting consumers, analysts say they won’t be filling up as often and lower demand could dampen the pace of further price increases.

Expensive gasoline has already caused some people to reduce their driving. Government data shows consumers have used about 8.8 million barrels of gasoline a day on average over the past four weeks, up from 9.1 million in the same period last year.

“It goes back to 2011, 2012 [demand] De Haan said of the government data. Data from GasBuddy also shows slower-than-expected demand over the past few days. For example, drivers bought 4% more gasoline on Thursday than the week before. , but De Haan had forecast that would be up 7% to 10% to account for drivers planning to travel over the bank holiday weekend.

“Based on that, there’s definitely demand destruction,” he said.

The national average price for a gallon of gasoline rose about 10% in May, although it was a fraction of a penny lower last day and flat last week.

According to Bespoke Investment Group, this is the third largest increase for the month of May since 2005, and the 40% jump in prices since the start of the year is more than double the historical average. Gasoline prices rose 35% on the last Memorial Day year-to-date as the economy began to reopen.

Consumers have clearly not been immune to soaring prices, as well as other inflations. The University of Michigan consumer sentiment survey, released on Friday, fell 10.4% in May to 58.4.

“Consumer sentiment is at its lowest level since 2011. It’s high gasoline prices that are undermining the consumer,” said John Kilduff, partner at Again Capital.

Gasoline prices rose sharply after Russia invaded Ukraine. Sanctions on Russia, a major supplier of oil and fuel to Europe, have left Europeans scrambling to find supplies elsewhere, straining already tight global supplies.

Combine that with reduced refining capacity, and the global fuel supply is well below normal. US refineries have lost about a million barrels per day of capacity in recent years.

“I think these high gas prices are making at least some people think twice,” Kilduff said. “We see a national average of $5 by July 4, and we should go down from there. I think history will repeat itself. Refineries are running at extraordinary rates. They are running at 97% on the East Coast and the Gulf. Coast, which are the main refining centers.”

Memorial Day is just the start of summer travel, but gas prices have generally peaked around this time of year. Prices at the pump are at a record high for the holidays, but once inflation is adjusted, the price is the highest since 2012, according to the Energy Information Administration.

“On average over the last 10 years, we usually peak somewhere in mid-May. … It could potentially be mid-July to the end, which would coincide with peak demand,” De Haan said. . “The overall market continues to tighten. Supply continues to fall.”

Some analysts expect gasoline prices to peak near or above $5 a gallon, although JPMorgan analysts have forecast a price above $6 a gallon. Analysts say the demand destruction could already be impacting the price, which rose 47 cents from last month, according to AAA.

Travel plans

According to a new survey, 90% of Americans plan to travel in the next three months and 50% say the cost of fuel is a major consideration. The survey of 2,210 people was conducted May 18-22 for the American Hotel and Lodging Association.

Nearly 70% of respondents say they will be taking vacations this summer, with 60% saying they will be taking more trips than in the past two years.

However, 82% said gas prices would have an impact on their destination.

For example, 57% said they would take fewer leisure trips and 54% plan to take shorter trips. While 44% say they are likely to postpone their trip, 33% say they will cancel with no plans to reschedule.

“I think there will be a respite [from rising prices] in June…I think we’re going to have a lot of demand, but that’s not the kind of summer sweet spot we’ll have in July and August,” said Tom Kloza, Global Head of Energy Analytics at OPIS . think demand will be much lower than 2019 and likely lower than what we saw last year.” In 2020, demand exploded as many Americans stayed home due to Covid.

Kloza noted that for all of 2019, gasoline demand was higher than it is now, at 9.3 million barrels per day. He expects pent-up demand for vacation travel to create an increase in gasoline demand in July. Demand peaked last year at around 10 million barrels a day on some days in the summer.

“I think we’ve seen the most violent price movements through July…July will be the month of the strongest demand,” he said. “In July anything goes, and in August anything goes because of the potential for hurricanes.”

Sal Risalvato, executive director of the New Jersey Gasoline Convenience Store and Automotive Association, said he expects a busier Memorial Day weekend for freeway travel than last year. He said consumers want to get out after two years of Covid, but demand for gasoline has yet to materialize as many had hoped.

He said the reason appears to be high gasoline prices.

“The best cure for high gas prices is high gas prices.”


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