Gas prices' 9th daily drop boon for holiday travel
SAN FRANCISCO (MarketWatch) -- It isn't time to celebrate relief at the gasoline pump just yet.
So far, the data are encouraging. The average price for a gallon of regular gas has fallen each day since May 16 and stood at $3.666 on Friday, according to AAA data. That is down 17 cents from a month ago.
"Oil price increases led to early gas price spikes, and oil price decreases lead to an early drop," said Jeff Lenard, a spokesman at the National Association of Convenience Stores, a trade group for an industry that sells 80% of the nation's gas.
At the beginning of the year, prospects for record prices above $4 or even $5 were a top concern. But talk of reaching those levels has all but disappeared. Read more on analysts' gasoline outlook at the start of the year.
Many analysts say that prices already reached their peak for the year back in April at around $3.94 a gallon.
Typically, prices peak around the second or third week of May, said Lenard, given that the "big hurdle" for most markets is the May 1 switch-over to the more environmentally-friendly summer blend fuels.
"Summer gasoline prices tend to be higher due to more expensive blends of gasoline and the summer driving season," said Michael Noel, senior vice president of Edgeworth Economic's oil and gas practice.
"But since crude oil accounts for 75% of the price and has been volatile, what pans out this summer depends in large part on what happens to the price of crude," he said.
The U.S. Energy Information Administration estimates a slightly lower percentage, with crude comprising around 66% of the price for gas.
"The best guess for crude prices at summer's end or even year's end is essentially what they are now, but as you can see, crude prices have a lot of volatility in them," Noel said.
And record gas prices this year "remain a possibility," said Noel. "If not this year, soon."
Oil to the rescue
Still, consumers can't help but be relieved that the risk of record prices at the pump this year has faded. U.S. oil prices have held below $100 a barrel for nearly all of May, at a time of falling fuel demand and rising refinery output.
In February, crude (CLN2) traded at nearly $110 a barrel on the New York Mercantile Exchange. On May 3, it held above $102.
So over the past three weeks, as of Thursday, crude futures have fallen by about 11%.
Alan Herbst, a principal at Utilis Advisory Group, said the pressure on oil stems from a combination of global economic-slowdown factors, including the euro crisis and softening growth in China.
At the same time, "geopolitical tensions have been easing, with Iran engaging in nuclear talks with world powers in Baghdad," taking away some of oil's risk premium, he said. Read about oil and its outlook.
U.S. refineries have also been boosting production over the past month even as demand for motor gasoline has weakened.
Refinery utilization was at about 88% for the week ended May 18, up from less than 85% four weeks earlier, while the amount of gasoline product supplied, a demand indicator, averaged almost 8.8 million barrels per day over the last four weeks, down 1.9% compared with the same period a year ago, EIA data show.
"Further gasoline price declines are possible should crude oil prices continue to weaken and if overall refinery utilization rates continue to increase," Herbst said.
Should crude continue its decline and stabilize at $80-$85 a barrel, he said, the average price of gas will probably end up in the $3.25-$3.50 range.
Not quite cheap
A 20-cent or more decline in gas prices sounds great. But the pinch on the pocketbook remains, given that prices are still at historically high levels.
"Relief is a relative word," Noel said. "It's easy to go back to the mid-2000s and find news stories quoting people dissatisfied with paying $2.50 or $3 a gallon, which would now be considered a deal."
Prices are also less than 44 cents below the highest recorded average of $4.11 a gallon seen on July 17, 2008, AAA data show.
"It is interesting that more people are accepting of $3.68 gasoline if the price has just fallen 20 cents than if it had just risen 20 cents, even though the price is the same in the end," said Noel.
On the West Coast, in particular, consumers have had to be even more accommodating, with $4 price levels becoming the norm.
"California voters have painted themselves into a corner in their ever-increasing demand for clean burning gasoline specifications," said Bob van der Valk, a petroleum-industry analyst based in Terry, Mont. "Those quality standards have made it hard for out-of-state refineries to come to their rescue whenever the call goes out for help."
Even though spikes in crude prices usually have a delayed impact, they remain a possible threat.
"Because of the lag in pass-through from crude prices to gasoline prices, there is a window of a few weeks where you can reasonably predict gasoline price changes," said Noel. "Inventory levels leading up to the summer season also play a role," he said. "Beyond that, short-term movements are not easily predictable.
For now, consumers can find some satisfaction in the lower risk of record gas prices this summer -- and that couldn't have come at a better time, with the summer driving season kicking off this Memorial Day holiday.
AAA predicts that nearly 35 million Americans will travel 50 miles or more from home during the holiday weekend, up 1.2% from a year ago, with around 30.7 million of those planning to drive to their destinations.
The expected travel volume is at a five-year high, according to AAA. Read about Memorial Day travel deals.
AAA's survey found that 53% of intended travelers said recent increases in gas prices wouldn't have an impact on holiday travel plans, while 47% said they would cut back on travel.
"Americans are passionate about their vacations and are still traveling during the Memorial Day holiday weekend and throughout the summer vacation season," said Cynthia Brough, a spokeswoman at AAA's national office in Florida. "They are stretching their travel budgets by economizing and seeking value to spend dimes like dollars."