Gasoline prices still too high for US holiday drivers

27 May 2011 16:08  [Source: ICIS news]

A US traffic sceneBy Sheena Martin

HOUSTON (ICIS)--US gasoline prices have begun to fall after nearly hitting the $4/gal (€0.75/litre) mark, but that drop will not stop more drivers from staying home this Memorial Day holiday weekend as a result of the high cost of fuel, an analyst said on Friday.

The three-day holiday weekend, which lasts 28-30 May, marks the start of the US summer driving season, which runs to September.

But fewer Americans are expected to take to the road during the US Memorial Day weekend because gasoline prices are still relatively high.

American automotive group AAA projected in its 19 May report that 30.9m Americans would drive this Memorial Day weekend, 100,000 fewer than the 31.0m who drove during the 2010 holiday.

In comparison, there was a 14% increase in the 2010 Memorial Day weekend driving compared with 2009.

The US national average retail gasoline price was $3.809/gal on Friday, down from a peak of $3.960/gal on 9 May.

“I think you’ve seen the peak of the season for gasoline prices,” said Michael Fitzpatrick of the energy-focused Killduff Report.

Even so, Friday's average price was still well over a dollar more than gasoline prices at this time last year at $2.759/gal, according to the AAA.

Fewer people will travel by automobile this Memorial Day weekend, and many of those who do intend to drive plan to rack up fewer miles and spend less, according to the AAA.

The AAA reported that 40% of surveyed travellers said that rising gasoline prices would make them change their travel plans.

The AAA projections are based on forecasting and research by IHS Global Insight.

Some respondents said higher gasoline prices would lead them to save money in other areas such as cutting down on trips to the mall, combining errands into one trip and considering public transportation. Others said they will shorten their trips or not travel by automobile.

“People are being more careful how much gasoline they use and how much they spend,” said Fitzpatrick. “I think that will impact prices, and keep prices lower later on.”

Analysts and the media were predicting in April summer gasoline prices well over $4/gal.

Gasoline prices had been on the increase since the beginning of the year.

In March alone, prices shot up by nearly 40 cents/gal as US refiners made their annual transition to summertime fuel blends while warfare in Libya and the earthquake and tsunami in Japan pressured oil prices and created gasoline pump shock.

In early May, Phil Flynn, an analyst for the brokerage firm PFGBEST, projected that prices would break the all-time record of $4.114/gal set in July 2008 by Memorial Day weekend.

But the record-buster did not happen.

US gasoline futures fell in May after it became apparent that demand would not support further price hikes amid a still lacklustre US economy.

Killduff Report’s Fitzpatrick said that even as gasoline prices take a slight dip, there is still consumer resistance to prices higher than $3.50/gal.

PFGBEST’s Flynn said, “There’s no doubt rising gas prices are contributing to a weak economy."

Inflation is first seen at the pumps and the grocery store, and consumers are taking this into account with their summer spending.

“I don’t see a continuous stream of data that shows continued recovery,” Fitzpatrick said.

The economy has taken a hit as Chinese demand for fuel slows while the US Treasury sells off bonds, causing the inflation.

“I think we’ve seen an impact on demand already," American Petroleum Institute’s (API) chief economist John Felmy said. "So far, demand was down 2.2% in April, and it seems to be continuing to be weak, especially in the urban areas.”

($1 = €0.71)

By: Sheena Martin
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