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Sky-high gas prices aren’t stopping Americans from hitting the road this summer

Despite a rebound in COVID cases, Memorial Day Weekend is expected to mark the start of a busy US driving season as Americans, who are starving after some time, are undeterred by rising gas costs and just about everything else.

Data from GasBuddy showed that nearly 60% of Americans plan to take a vacation sometime this summer. This is the highest value since 2019.

This suggests that after two years of pandemic-related isolation, Americans are feeling the itch to travel.

But how many people will take to the streets on Memorial Day weekend?

According to the American Automobile Association, nearly 40 million people are expected to drive 50 miles or more during the holiday season. That’s up 8.3% from the same weekend a year ago, and just below pre-pandemic levels. In comparison, prices at the pump have increased by about 50% over the past year.

In the US, gas prices are already sky high – and most experts expect them to keep rising. In the week leading up to Memorial Day, the national average gas price was about $4,598 per gallon, according to data from AAA. That compares to just over $3 a gallon a year ago.

While travel plans are fairly consistent across the US, it’s worth noting that the strain on each family’s wallet will be different depending on where they live.

Nearly a dozen states, plus Washington DC, pay more than $5 a gallon for regular gasoline at the pump. And thanks to their high state taxes, Californians pay more than $6 a gallon on average, with at least one gas station in the northern part of the state charging more than $7.

Both Los Angeles and San Francisco have had gas prices topping $6 a gallon in their respective areas, and other American cities are expected to follow suit in the not too distant future.

And there is no relief in sight – at least not according to the analysts of the major investment banks, who expect gas prices to continue to rise over the course of the summer.

A team of commodities analysts at JP Morgan recently warned the bank’s clients that the average US gas price could top $6 a gallon by the end of August, an increase of more than 35%.

“Typically, refineries produce more gasoline and build up inventories ahead of the summer roading season. But this year, since mid-April, U.S. gasoline inventories have been declining seasonally and are now at their lowest seasonal levels since 2019. East Coast gasoline balances have been even tighter, hitting their lowest levels since 2011,” JP said Morgan analysts said in their note.

Although US refineries have picked up steam in recent weeks, the data shows that the increase is still not enough to offset the fall in inventories.

Crude stockpiles in Cushing, Oklahoma, the main center of the US energy industry, have fallen below 25 million barrels for the third straight week.

Nonetheless, refineries in the US were running at full steam in the weeks leading up to the start of the summer driving season as they reacted to the wide spread between crude oil prices and refined petroleum product prices, which is a serious boon for the business of refinery.

According to EIA inventory data released Wednesday, Gulf Coast refiners increased their run rates to 97.4% last week, the highest since January 2020, while refiners along the East Coast lifted their run rates to 97%, the highest since July 2018 With this increase in production came a modest decline in gasoline inventories, while inventories of heavier products — including heating oil and jet fuel — showed a slight increase. A driving factor was exports, which also accelerated last week.

Refiners have many incentives to operate at or near capacity: In the US, the spread between gasoline, heating oil and other distillate prices and crude oil prices remains at or near an all-time high. This is known as the “crack” spread and is a measure of the price of a barrel of oil and the prices of the refined products that can be made from it.

Although refineries are capable of operating rates in excess of 100%, capacity remains an issue, according to Patrick De Haan, head of petroleum analysis at Gas Buddy.

“From diesel to gasoline, it’s been a story of tight inventories and lower refining capacity than it was a few years ago,” De Haan said. “Whether we have enough capacity to get through the driving season is really the question.”

Looking ahead, few analysts can envision a catalyst or catalysts that could lead to a return in oil and gasoline prices — though a severe recession might be enough.

“Unless there’s a major recession and Russia doesn’t turn around, we’re going to see elevated product prices for most of the summer, if not all of the year,” De Haan said.

https://www.marketwatch.com/story/sky-high-gas-prices-arent-stopping-americans-from-hitting-the-road-this-summer-11653505982?rss=1&siteid=rss Sky-high gas prices aren’t stopping Americans from hitting the road this summer

Brian Lowry

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