Gas prices continue to retreat, reaching levels not seen since January, which is welcome news for motorists embarking on a summer getaway to celebrate this week’s Independence Day holiday.
AAA projects an estimated 35.5 million Americans will travel by car during the Independence Day holiday period. Falling gas prices are undoubtedly a factor in the projected 4.9 percent increase in travel for the second holiday of summer, tying the second highest travel volume this decade (2007) for July Fourth travel.
The national average dropped to $3.35 Friday, down 10 cents for the week, 28 cents for the month and 19 cents below year-ago prices. Since peaking in early-April ($3.94), gas prices have dropped 59 cents and continue to ease away from the record high of $4.11 set four years ago this month.
Crude oil continued to trade in sub-$80 territory for most of the week, after reaching the milestone settlement last week for the first time since October. Concern about the global economy, particularly the sovereign debt crisis in Europe and a slowdown in growth in large emerging market economies such as Brazil, India, and China, continues to act as a drag on expectations for future oil demand, putting downward pressure on prices. A stronger dollar relative to other currencies reduces oil prices in the U.S., as oil is traded in dollars. While prices remain lower this week, they continue to reflect an implicit risk premium associated with geopolitical instability in the Middle East and North Africa. Traders continue to be concerned about potential supply disruptions should the violence in Syria spread to neighboring countries, or should the political transitions in Egypt or Libya impact the global supply chain. Thursday saw losses across the commodities market, sending crude oil down $2 per barrel to a new 2012 low of $77.69 (the lowest level since October).
However, crude oil prices soared more than 9 percent on Friday due to the European Union summit. European leaders said they would create a single supervisory board for eurozone banks, helping to create a rift between government debt and bank debt as well as capitalize fund usage to aid Spanish and Italian economies. Crude oil jumped $7.27 per barrel Friday to settle at $84.96 per barrel, the biggest move since prices gained more than $9 per barrel in mid-May 2011, and the sharpest gain since the end of February of the same year. Friday’s jump did come with some skepticism from market watchers, noting it was the last day of the quarter and the last day of the month, typically days that see spikes in oil prices.
In its weekly report, the Energy Information Administration (EIA) reported the nation’s crude oil stocks decreased by 100,000 barrels to 387.2 million barrels last week, but remain well-above the upper limit of the average range for this time of year. Gasoline stocks rose 2.10 million barrels last week to 204.8, to the lower limit of the average range. Analysts were expecting crude oil inventories to decline by 1 million barrels and gasoline stocks to add 300,000 barrels last week. Demand for gasoline increased 1.8 percent to 8.85 million barrels a day, while consumption is still 4.5 percent lower than a year ago.
“Prices at the pump continue to drop as Americans prepare to celebrate the Independence Day holiday,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “AAA is projecting a record-tying 42.3 million Americans (up 4.9 percent from last year) will be traveling, a level not seen since 2007. Decreased fuel costs since a 2012 peak in early-April (more than 50-cents per gallon in most areas) and the ability to extend the holiday over one or two weekends are two factors impacting this year’s projected travel increases.”
Looking ahead to beyond the summer driving season, gasoline prices should fall even more by the fourth quarter, according to Tom Kloza, oil analyst for the Oil Price Information Service (OPIS). While gasoline prices are already more than 50-cents below this year’s high ($3.94 in early April), prices will drop another 15 to 25 cents a gallon nationally and by the fourth quarter prices could fall below $3 a gallon, notes Kloza. After Labor Day prices typically drop because demand drops at the end of the summer driving season and refiners no longer have to produce the more-expensive summer blended gasoline.
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