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Gasoline prices in U.S. to rise near $3/gallon ahead of driving season



By Stephanie Kelly

Petroleumworld 05 28 2018

Filling the fuel tank for vacation driving this summer will be pricier than it has been in nearly four years for American motorists, as gasoline prices nationwide rise toward the expected average seasonal price of $3 a gallon.

Lower-income consumers could be most likely to rethink their driving habits as pump prices rise, the American Automobile Association said. Prices ease as the peak summer season ends around September, AAA said, but they could remain at seasonal highs not seen since 2014.

“For consumers who have constrained budgets, they won't be able to cope with the additional shock to their household budget after a certain point,” said Devin Gladden, a spokesperson for AAA. This could crimp total U.S. gasoline demand, which has risen for five straight years, even though the current price level does not approach 2008, when the average gallon topped $4.

On the eve of the long Memorial Day holiday weekend that kicks off summer driving season, analysts do not expect gasoline demand to suffer much as of yet. The U.S. Energy Information Administration expects gasoline consumption to be unchanged in 2018 from 2017 as population and employment growth supports demand, said Tim Hess, a product manager for the EIA's Short-Term Energy Outlook.

Global benchmark Brent crude oil futures have surged nearly 50 percent over the last year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries (OPEC) and other major exporters.

This past week, Brent topped $80 a barrel for the first time since 2014, and the gasoline futures contract on the New York Mercantile Exchange hit its highest since October 2014.

Whether that starts to pinch consumer spending depends on how long prices remain elevated, according to Bank of America/Merrill Lynch economists. The investment bank, in a note last week, said a sustained increase in oil to $80 or $100 a barrel would have a more pronounced effect on economic growth than a temporary spike.

As of Thursday, the average gasoline price was $2.961 a gallon nationwide, according to AAA, compared with $2.367 a year ago. The average exceeds $2.99 a gallon in 17 states, up from just 10 states two weeks ago.

Prices for gasoline have already affected some consumer spending habits. U.S. retail sales increased marginally in April as rising gasoline prices cut into discretionary spending.

Consumers could respond to higher prices by combining trips to the grocery store or carpooling, said Matthew Lewis, an associate professor of economics at Clemson University. However, much of gasoline demand is inelastic, Lewis said.

“People will cut back, but not that much, which means they're still driving a lot and they're paying more to do it,” Lewis said, adding that for a 10 percent gasoline price increase, demand typically drops only about 3 to 3.5 percent.

However, people who buy gasoline for the physical market have become more cautious about demand, a products trader said. Cash prices for Gulf Coast A2 gasoline, a grade that often reflects the U.S. domestic market, have fallen about 2 cents per gallon below the futures contract on NYMEX in the past week and a half.

(For a graphic on U.S. monthly price averages for gasoline, see: )



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Story by Stephanie Kelly; Editing by David Gregorio from Reuters 05 25 2018

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