Gasoline prices will be at the lowest level since March as U.S. drivers take to the highways this Memorial Day weekend, the traditional start of the summer driving season in the world’s largest energy-consuming country.
Pump prices have dropped for three weeks to an average $2.759 a gallon for regular gasoline, as of May 26, as crude oil prices collapsed, according to AAA, the nation’s biggest motoring organization. Consumers will be paying 13 percent more than a year ago, though prices are 30 percent less than in 2008, the year crude oil rose to a record $147 a barrel.
About 28 million people will be on road trips during the holiday, a jump of 5.8 percent from a year earlier and the first increase since 2005, according to AAA, which calculates the period over five days, from yesterday through Monday. Crude oil futures are down 14 percent on the New York Mercantile Exchange since May 3.
“We look forward to this weekend,” said Bill Compitello, senior director of petroleum supply at Wawa, Pennsylvania-based Wawa Inc., a gasoline retailer with 272 outlets in five states from New Jersey to Virginia. “The last few seasons people have been staying closer to home.”
Confidence among U.S. consumers increased in May to the highest level since March 2008 as Americans became more upbeat about job prospects. The Conference Board’s confidence index rose to 63.3, exceeding the highest estimate in a Bloomberg News survey, from a revised 57.7 in April, figures from the New York- based private research group showed.
“We’re expecting there to be a noticeable increase” in fuel demand beginning this weekend, said John Gamel, director of economic analysis for MasterCard Advisors, which publishes its SpendingPulse report on retail gasoline sales each week. “We have all the ingredients from a price perspective and some good news from the consumer confidence level, which all bodes well for the summer driving season.”
Gasoline futures have fallen 16 percent since May 3. Crude oil accounts for about 69 percent of what motorists pay at the pump, according to the Energy Department.
Prices may tumble further if more fuel cargoes arrive from Europe and Venezuela, adding to supply. Gasoline imports rose to 1.1 million barrels a day for the week ended May 21, a 10 percent increase from a year earlier, according to the Energy Department.
State-owned Petroleos de Venezuela SA announced that it’s selling cargoes of reformulated gasoline to the U.S. in May and June, said Andy Lipow, president of Lipow Oil Associates LLC in Houston, in a May 25 telephone interview.
“If those cargoes materialize, they will add to supply and pressure the New York Harbor market,” he said.
Gasoline inventories were 221.6 million barrels last week, 5.8 percent above the 5-year average, according to the department.
Inventories of the fuel are high and profit margins for refiners are “decent, so you can expect increased output,” said Phil Flynn, vice president of research at PFGBest in Chicago. “After the Memorial Day weekend, prices should come under pressure.”
The Energy Department predicted in a May 11 report that gasoline prices will average $2.94 a gallon from April through September, assuming average crude oil prices of $83.16 a barrel for the period. Crude oil has averaged $79.61 since April 1.
“If you asked us for our projection of summer gasoline prices next month, I know it will be lower than what we published in the May outlook,” Howard Gruenspecht, EIA’s deputy administrator, said in Washington on May 25. “You might drop 25 cents a gallon off of that price,” he said.
Trilby Lundberg, an independent gasoline analyst in Camarillo, California, said she had expected to fall another 5 to 10 cents from current levels until crude oil rebounded 8.4 percent the past two days.
“With today’s higher crude oil price, however, more than half the downward pressure on retail gasoline is effectively canceled,” she said.
Retail prices for gasoline dropped the most in the Midwest last week, falling 8 cents to an average of $2.76 a gallon, according to MasterCard. Consumers paid 4 cents less in the Central Atlantic states from the previous week, according to the MasterCard report.
Temperatures on Memorial Day are expected to reach 82 degrees Fahrenheit (28 Celsius) in New York, 79 in Chicago and 85 in Los Angeles, according to the National Weather Service.
While demand is contingent on the weather, gasoline consumption is typically high in the Northeast, “especially at the Jersey Shore, they just go gangbusters down there,” Compitello said.
Pump prices on the West Coast fell 3 cents last week, while a production disruption at BP Plc’s Carson, California, refinery may reduce supply, causing drivers to pay more.
“I don’t see much help for the consumer” in California, said Bob van der Valk, a fuel pricing analyst at 4Refuel Inc., a Canadian fuel-management company.
The Carson refinery, located near Los Angeles, is the second-largest plant in the state. “California will definitely feel an impact from the Carson refinery, because it’s an isolated market,” said Flynn. “Nationwide it won’t have any impact.”