Even with global oil prices grinding higher, American holiday travelers will see the cheapest prices at the pump in more than a decade for this holiday weekend, saving nearly 50 cents a gallon compared with last year. But the bargain-basement prices are probably fleeting. Declining oil supplies have led to a near doubling of crude prices since early February. On Thursday, the world’s benchmark prices breached $50 a barrel, and for the first time since August prices for regular gasoline have risen above $2 a gallon in all 50 states.
The average gas station has raised its prices 17 cents a gallon over the last month — and 5 cents over the last week alone. The sharp decline in oil and gasoline prices since late 2014 because of a persistent global petroleum glut has been partly reversed in recent weeks as wildfires curbed production in Canada and rebel attacks throttled Nigerian oil exports. At the same time, oil companies are cutting back production in the United States and several other countries because of the recent collapse of oil prices — which still remain at levels that are roughly half what they were two years ago. And the low prices have raised demand for petroleum products in China, India and the United States.
Oil and gasoline prices are not poised to return to levels of the days when crude was worth well over $100 a barrel, which became the norm in recent years. That was before the drilling frenzy in shale fields across the United States slashed imports and flooded the global market, while demand slowed in Europe and many developing markets. But the rig count in the United States is now down roughly 80 percent over the last two years, which means less exploration and production through the end of this year as output from older wells declines. Since service companies have slashed their payrolls, it will take as much as six months to rehire and organize new drilling crews to develop new wells, energy experts say.
“The help the consumer has gotten in this weak economy from low oil prices is coming to an end,” said Larry Goldstein, a director of the Energy Policy Research Foundation, a research group funded by the government and oil industry. “The unanticipated supply disruptions are coming at the most inopportune time. Now U.S. production is declining and global inventories hare starting to decline along with it.” Oil executives and other experts say that still hefty global inventories will keep prices from rising to extremes anytime soon, but that oil prices are likely to rise at least another 10 percent during the next year.
Further steady rises in price are expected through the end of the decade given the deep cuts in exploration investment across the global oil patch. But drivers probably should not worry about such projections too much for the rest of the summer. On Thursday, the average price for a gallon of regular gasoline nationally was $2.31, 43 cents below a year ago, according to the AAA motor club. The Oil Price Information Service, which monitors fuel prices, expects that the average national price this summer will be $2.25 to $2.50 a gallon of regular, the cheapest summer driving since 2009. Refinery repairs have been particularly helpful in reducing prices in California.
AAA expects 34 million people to drive at least 50 miles this holiday weekend, the most since 2005. It is part of a broader trend of more road travel as the economy improves. Experts say the Memorial Day traffic is just the beginning of a summer of traffic jams at the nation’s beaches and mountain parks. “The statistics over the last two years have been dramatic in terms of numbers of increased road trips during the critical holiday periods,” said Bill Sutherland, senior vice president for travel and publishing at AAA. “As the roads become busier, and as the hotels become used, as restaurants fill up, you will want to be sure you have effectively planned out the trip.”
In the meantime, economists say that they see a benefit for lower-income people, who spend the highest proportion of their salaries on energy and generally drive older, gas-guzzling vehicles. Some of the states with the lowest gasoline prices, like Mississippi, South Carolina and Arkansas, have a large number of lower-income workers, many of whom drive long distances to work.
And some sectors of the economy, including tourism, are also benefiting.
“People are driving more and eating out more, and employment in restaurants is up incredibly,” said Mine K. Yucel, director of research at the Federal Reserve Bank of Dallas. “People care about oil prices because they see the price of gasoline on every street corner. They experience the change in price every week or 10 days, and they feel they have more cash in their pockets.” If nothing else, the rising price has raised morale in the U.S. oil patch. “There is a chance the price could go down pretty quick,” said Denzil West, president of Reliance Energy, a Texas driller. “With prices being a little more stable, we’re cautiously optimistic, but a lot of companies have been wrecked and all the fallout has not been seen yet.” Gino Gradkowski JerseyShare This