Spring fever may be in the air, but American motorists already have summer road trips top of mind. AAA’s latest Gas Price survey found that if gas prices remain low, one in three Americans (33 percent) would likely plan another summer road trip, while 27 percent would increase the distance of one – with Generation X more likely to do both than Baby Boomers. AAA expects the national gas price average this spring to reach $2.75, a savings of nearly 20 cents compared to last spring’s high of $2.92.
“Cheaper crude oil prices have helped to keep pump prices lower this winter,” said Elizabeth Carey, director of public relations at AAA Western and Central New York. “While we are seeing the national gas price average increase and mirror prices from this time last year, spring pump prices for the majority of motorists are not expected to elevate to the nearly $3/gal level of last May.”
In New York State, the average is already at $2.72, compared to $2.75 last year. Western and Central New York is likely to see prices rise at least another 10 cents. However, motorists on the West Coast and in the Rockies region will likely see prices reach or exceeded $3/gal, which is similar to last year.
In addition to increasing the number or mileage of summer road trips, the AAA survey shows that Americans said lower gas prices would encourage them to spend or save more, but this varies based on generation and region:
- The majority of Millennials (53 percent) and Gen X (49 percent) would put aside money for savings as compared to Baby Boomers (44 percent).
- Generation X is more likely to increase shopping/dining out, drive more on a weekly basis or use more expensive gas as compared to compared to Baby Boomers.
- Motorists in the South (11 percent) and West (10 percent) say they would use more expensive gas while 5 percent of those in the Midwest and 7 percent in the Northeast would be willing to upgrade fuel type.
Springing Gas Prices
While the first few months of this year ushered in daily national gas price averages that were, at times, as much as 35-cents cheaper than a year ago, pump prices since the middle of March have been mostly similar to prices at this time last year. Today’s national gas price average is 4 cents more expensive than a year ago.
“Historically, early spring triggers an increase in pump prices due to an increase in demand as Americans put the winter blues behind them and drive more. Another factor pumping up the price is the switchover to summer-blend gasoline, which is more expensive for refiners to produce,” added Carey.
The difference between summer- and winter-blend gasoline involves the Reid Vapor Pressure (RVP) of the fuel. RVP is a measure of how easily the fuel evaporates at a given temperature. The more volatile a gasoline (higher RVP), the easier it evaporates. Summer-blend gasoline has a lower RVP to prevent excessive evaporation when outside temperatures rise. Reducing the volatility of summer gas decreases emissions that can contribute to unhealthy ozone and smog levels. A lower RVP also helps prevent drivability problems, especially in older vehicles. Summer-blend is more expensive to produce and that cost is passed on to the consumer each spring.
Motorists benefitted this winter from lower crude oil prices, which comprise approximately 50 percent of the prices paid at the pump. Crude prices ranged between $48 and $56 per barrel this winter, while winter 2018 saw consistent prices between $60 and $65. This difference helped to keep pump prices mostly cheaper this winter, but crude prices are likely poised to increase this spring possibly back to $65, which will propel gas prices higher as gasoline demand increases across the country.
Moreover, moving into spring, crude prices will likely increase as the Organization of the Petroleum Exporting Countries (OPEC) continues to implement its agreement with other global crude producers to cut production by 1.2 million b/d, which remains in effect through June. OPEC has announced that it will not meet in April to discuss the pact; instead, it will meet on June 25 and 26 and may announce a decision to end or extend its agreement at that time. OPEC and its partners will likely look toward global pricing trends around the time the cuts are set to expire as well as global crude demand forecasts, and how well members of the reduction pact have adhered to the production cuts to determine if it should extend its pact beyond June. If it does and crude prices rise dramatically, American motorists could see pump prices spike later in the summer.
Additionally, U.S.-imposed sanctions meant to curtail crude exports from Iran and Venezuela will likely tighten global supply and help crude prices inch up this spring. The exact price impact will be determined by how stringently the United States enforces the sanctions. Some market observers believe the United States, which is now the world’s leading crude producer, could help meet global demand because of its newfound export prowess. However, growth in domestic demand for crude, particularly during the high-demand driving season this summer, may limit just how much the United States is able to contribute to the global crude market.
Summer Look Ahead
AAA expects summer 2019 gas prices to be on par with prices during summer 2018, with May seeing the highest prices of the year. Heading into summer, a variety of factors, including U.S. supply-demand levels, U.S. production and crude prices will help better shape the summer forecast.