Gas Prices Drop as Americans Hit the Road for Summer Travel

Gas Prices Set to Decrease for Summer Driving Season (more news, subscription wall street journal)

Good news for road-trippers: Gas prices are expected to be lower this summer compared to last year’s spike in oil prices. Currently averaging around $3.58 per gallon, down from the record high of $5 a year ago, this decrease can be attributed to several factors.

Recession fears, a slow economic restart in China, and a steady supply of Russian crude oil have put pressure on global oil prices, which now stand around $75 per barrel, a significant drop from the $120+ levels seen last summer.

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The combination of reduced oil demand and cautious consumer behavior following the pandemic has contributed to the containment of gasoline prices, just as many Americans are gearing up for their summer road trips. However, it is worth noting that gasoline prices still remain relatively high compared to previous years.

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Apart from cheaper gasoline, consumers have also witnessed a decline in diesel prices by about $1.88 per gallon from last year, now averaging $3.90. Moreover, they can expect lower electricity bills this summer due to a more than 77% drop in weekly natural gas prices. Overall, the energy index has decreased by 11.7% in the past 12 months, offering some relief to households.

Despite Saudi Arabia’s recent announcement of a one-million-barrel-per-day oil production cut, analysts do not anticipate an immediate increase in prices. In fact, Goldman Sachs Group revised its end-of-year outlook for Brent crude down to $86 per barrel from the previous forecast of $95.

The softening of gasoline prices has led to increased road travel, with consumers purchasing approximately 9.2 million barrels of fuel per day in the week ending June 9, representing a 100,000-barrel increase compared to the same period last year.

However, gasoline usage still lags behind pre-pandemic levels. While the average consumption of motor and aviation gasoline was over 9.3 million barrels per day from 2016 to 2019, it dropped to about 8.1 million barrels per day in 2020 and has only partially rebounded to 8.8 million barrels per day in 2022. Factors such as interest rate hikes by the Federal Reserve, consumer frugality, remote work culture, and the growing presence of electric and fuel-efficient vehicles have contributed to this hesitant recovery.

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Despite the decline in fuel makers’ margins, which dropped from around $50 per barrel last year to approximately $30 per barrel, refineries are still operating at high utilization rates to meet demand and capture market opportunities. In May, weekly utilization at fuel-making plants averaged nearly 92%, similar to last year’s rate when gasoline prices were almost $1 higher. However, high refinery runs have also resulted in low gasoline stocks.

With refining capacity still below pre-Covid levels, some companies have expanded their processing capabilities to alleviate the situation. Exxon Mobil, Valero Energy, Marathon Petroleum, Citgo Petroleum, and Cenovus Energy are among the companies that have increased their refining capacity, either through capacity expansions or reopening damaged refineries.

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As the hurricane season approaches, analysts are closely monitoring the situation as storms hitting the Gulf Coast, where many refineries are located, could result in supply disruptions and potential price increases at the pump.

Forecasters from the National Oceanic and Atmospheric Administration predict a “near normal” Atlantic hurricane season, with 12 to 17 large storms, some of which may develop into hurricanes.

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Patrick De Haan, head of petroleum analysis at GasBuddy, expects gasoline prices to range between $3.40 and $3.80 this summer, barring any major refinery outages. (subscription wall street journal)