Americans filling up their cars this Memorial Day weekend will have a break, at least compared to a year ago, when gas prices were through the roof.
The national average price of regular gasoline is a full dollar a gallon lower than it was a year ago. Drivers paid more than $4.60 in May 2022, and prices hit $5 in the second week of June. This week, they paid just over $3.50 a gallon for regular gasoline, according to AAA, the motor club.
Many energy experts said they expected prices to stay around these levels for much of the summer, barring a major disruption in global oil supplies.
Because gasoline prices are posted on street corners with large, colorful signs, they can have a powerful psychological impact on consumers, especially low- and middle-income people who tend to drive older, less-efficient vehicles. on fuel and spend a higher proportion of their income on energy than rich people.
“Who wouldn’t be happy to save the money?” said Eddie White, 46, who uses his truck to make deliveries and offer rides through Uber. White, who lives in the Houston area, said he was saving about $420 a week by filling up at least once a day. He is using that money to pay for classes that will help him become an insurance adjuster.
Aaron Hawkins, 22, runs a phone store and serves in the Army Reserves. His Reserve duties require him to drive regularly between Houston and Baton Rouge, Louisiana. He said that he was saving between $150 and $200 a month on gas.
“It’s much better for everyone,” he said of the lower prices.
Prices skyrocketed last year after Russia invaded the Ukraine in February. Oil traders expected Russian exports to fall due to sanctions imposed on the country by the United States and its allies in response to the invasion.
The war continues, but Russia has found a way to continue selling its oil, albeit at greatly reduced prices, mainly to China and India. As a result, world oil supplies remain plentiful. It also helped that the United States and other industrialized countries released oil from their strategic reserves when prices rose.
At the same time, the demand for oil and the fuels produced from it has not skyrocketed. In the United States, the use of motor fuels has not changed much since last year and has yet to recover to pre-pandemic levels. But that may be starting to change. Gasoline demand has increased over the past month, and AAA is predicting a 7 percent increase in holiday weekend travel over last year.
With stronger supply and weaker demand than many traders and analysts had expected, the benchmark US oil price gradually fell from around $120 a barrel last summer to around $ 72 a barrel on Thursday.
Prices briefly spiked last month after Saudi Arabia, Russia and other big oil producers announced they would cut output by 1.1 million barrels a day, or just over 1 percent of global supplies.
But that rally failed and oil prices have been falling in recent weeks. Many traders are increasingly concerned that the Federal Reserve’s interest rate hikes, designed to reduce inflation, will slow the economy and could cause a recession. The central banks of Europe are also following similar policies.
Fears of a recession have also increased in recent weeks due to the breakdown in debt ceiling negotiations between President Biden and House Republicans. Separately, signs that China and India, the world’s most populous countries, are not buying as much fuel as expected have also dampened oil prices, according to a report by the Eurasia Group, a research and consulting firm.
“Last year, there was higher demand growth and lower supply growth,” said Linda Giesecke, head of demand analysis at ESAI Energy, a consulting firm. “This year, demand and supply are relatively balanced.”
After nearly two years of dealing with high inflation, many Americans appear to have changed how and where they buy gasoline and diesel, said Tom Kloza, global head of energy analysis at the Oil Price Information Service. Many people have started buying fuel from big box retailers, which often offer lower prices than independent service stations.
“The Costcos, the BJ’s, the Sam’s Clubs, the Buc-ees, the supermarkets, they all took market share from 2020 to 2022, and they’re not going to give up,” Kloza said. “It’s harder for the little ones,” he added, referring to gas stations that use the brands of major oil companies like Exxon and Chevron, but are typically owned by families or small businesses.
Depot stores and other large retailers are able to offer lower prices because they negotiate the best deals with refiners and buy gasoline in bulk.
Another factor holding back prices is the growing popularity of electric vehicles. Battery-powered vehicles could become increasingly important in reducing demand for fossil fuels and limiting climate change over the next decade.
Patrick De Haan, head of petroleum analysis for GasBuddy, a company that tracks gasoline prices, said he expected the national average price of regular gasoline to stay below $4 a gallon this summer. He calculated that consumers would spend $1.6 billion less than last year on gasoline over Memorial Day weekend. The Department of Energy recently estimated that the average national price of gasoline this summer would be $3.40 a gallon, about 20 percent lower than last year.
Of course, prices vary widely across the country, in part due to differences in state gas taxes and the cost of real estate, labor, and other expenses. The Department of Energy estimated that the average price of gasoline on the West Coast would be $4.30 a gallon this summer, about 90 cents above the national average.
Gasoline prices tend to be highest between April and September, when people drive the most. Also, summer grade gasoline tends to be more expensive to produce because pollution regulations require it to be mixed differently.