As tens of millions tank up and hit the road for Memorial Day weekend, gas prices are rising fast enough to revive painful memories of the $4-a-gallon summer of 2008.
Rest easy: The economic slack created by the recession all but guarantees prices won’t spike the way they did last year, analysts say.
On Thursday, a gallon of unleaded averaged $2.36. That’s much cheaper than the $3.80 it cost this time last year, but prices are still up about 30 cents a gallon this month, enough to make drivers flinch.
Even so, the auto club AAA estimates 32.4 million people, or about one in 10 Americans, will travel over the holiday, most of them driving. That’s a slight 1.5 percent increase from 2008.
Vacations make a lot more sense for many families than they did last year.
Airfares, hotels and tourist attractions are all cheaper this year because of the relentless recession.
Gas is no exception. For much of this year, there has been a glut of gasoline in storage around the country, keeping prices low. And demand has been light because of the poor economy.
But gasoline has jumped in May. Oil refineries, trying to make money just like any other business, are taking in less oil because of the glut in gas, and those cutbacks are showing up at the pump.
At the same time, prices are starting to rise for seasonal reasons.
Americans drive more in summer, and federal and state laws require different, more expensive gasoline blends this time of year.
The trading markets are at work, too. By mid-February, the price of oil had fallen so far — below $34 a barrel, compared with a peak of $147 last July — that large investors couldn’t resist buying in.
Investing momentum feeds on itself, and government data suggests speculative trades are on the rise, meaning people are buying in simply because they know they can sell for a quick profit.
The same thing happened last year, to a much greater extent. Because when the Wall Street crisis struck and the economy tanked, oil prices collapsed. Gas fell to $1.61 by the end of the year.
Last May, U.S. motorists were spending about $1.4 billion a day on gasoline. These days, it’s only about $874 million. And even though more people are traveling for Memorial Day, IHS Global Insight, which studies travel habits for AAA, expects Americans to take 20 million fewer trips from April to September than they did last year.
Even the kind of cataclysmic event that sends gas prices into a spike, like a hurricane in the oil-rich Gulf of Mexico, probably won’t push gas past $4 a gallon this summer, analysts say.
Last year, Hurricanes Gustav and Ike battered the Gulf, and gas shot to $5 a gallon in some parts of the Southeast. But refineries were churning out gas at a much higher rate then.
This year, even if a hurricane knocked out refineries along the northern Texas coast, which account for about 20 percent of U.S. gas production, refineries in Louisiana and elsewhere could pick up the slack.
(Source: WCBSTV)
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Bottom line is, recession or no recession, demand FAR outstrips supply for gasoline and oil. The main reason why oil prices collapsed is because hedge funds collapsed as investors frantically pulled their money out. No funds, no hedge fund. No hedge fund, 1/2 the investors, gone. 1/2 investors gone, no momentum in the markets. But now money is coming back online.
Expect oil to fly again before you see any other investments picking up. If you just use gasoline and don’t invest in it, maybe now is a good time to think about building a storage tank and stocking up for the next 10 years. At $2.50 a gallon you will save yourself as much as $10 a gallon down the road. (Just kidding about the storage tank, it’s far too dangerous to actually do).