Rising oil prices caused by production cutbacks and supply disruptions are helping push gasoline prices to their highest level in more than three years, just as drivers are preparing for Memorial Day and summer road trips.
Average U.S. retail gasoline prices are approaching $3 per gallon, with the national average around $2.96 Wednesday.
Experts say drivers this summer could pay the highest prices for gasoline since 2014, although less than the high in 2008, when the average topped $4 a gallon.
Last year’s Memorial Day average gasoline price was $2.30 per gallon.
While pump prices typically rise during the summer, as refiners have to meet more stringent, and costly, environmental requirements, the uptick could last longer this year.
Patrick DeHaan, petroleum analyst at GasBuddy, a fuel-tracking app, said consumers are worried.
GasBuddy conducted a survey of 17,000 users from April 27 to May 3 that found 39 percent of respondents say high gas prices are affecting their summer travel plans.
“It’s unfortunate that gas prices have gone up,” DeHaan told the Washington Examiner. “There is some anxiety behind high prices.”
Nationwide, Americans last year spent 2.3 percent of their disposable income on gasoline, according to Kevin Book, managing director for research at ClearView Energy. That share has increased to 2.8 percent in 2018 and may jump to 3 percent or more if gasoline prices continue to rise.
Residents of red states, many of which have rural and low-income communities, are more vulnerable to higher pump prices than those in blue states, ClearView found in a December report. That could dampen the impact of tax cuts passed by the GOP-controlled Congress in December.
“It sounds like it’s not a lot, but if you take away a half-percent of your disposable income, the margins really do feel a price increase,” Book said. “Not everyone has an average income or drives average distances. And people who drive the longest distance often have the lowest incomes.”
Other automobile and energy experts, however, are less concerned.
“I don’t think we should be hysterical at this point,” Rebecca Lindland, an executive analyst for Kelley Blue Book, told the Washington Examiner. “Historically, gas prices have risen dramatically and either stay very high and we learn to live with it, or they come back down again.”
Kelley Blue Book released a survey this month of an online community of vehicle owners and shoppers, in which a majority of respondents said they thought gas prices will continue to climb this year.
The “reasonable” price for a gallon of gas is $2.50, those surveyed said.
When oil prices collapsed in 2014, gasoline prices followed. Since then, drivers are buying larger, less fuel-efficient cars.
The Trump administration is attempting to weaken tough fuel efficiency standards imposed by the Obama administration for model years 2022 to 2025, which are meant to encourage automakers to make cars that pollute less.
Automakers say those standards are too tough to meet, with consumers continuing to buy bigger cars and sport utility vehicles, although the industry is still seeking some toughening of the rules.
Respondents to the Blue Book survey indicated $4 a gallon is the tipping point where fuel costs would affect the type of vehicle a person will purchase.
Lindland doesn’t expect drivers to change their purchase or driving habits because of the latest spike.
Most new car buyers, about 60 percent, reported to Kelley Blue Book that recent increases in gas prices have not played a role in the new vehicle they are considering.
Only 3 percent said they would consider carpooling to save money.
“People just don’t want to be inconvenienced,” Lindland said. “They would spend a little bit more on gas up to a point. The question is where is that pain point, where a consumer says, ‘Enough, I have to change.'”
But some experts say the growing importance of energy to the U.S. economy makes Americans more resilient to higher oil and gas prices.
“The thing that has changed from years ago versus today is that shale in the U.S. is a big producer and benefits from higher oil prices, so it doesn’t have the impact it had before,” said Joseph McMonigle, president of the Abraham Group, a consulting firm, and a former chief of staff of the Energy Department in the George W. Bush administration.
“The ripple effects of an energy industry that is growing provides a big economic lift,” McMonigle told the Washington Examiner, noting the indirect jobs and economic benefits that can come from better fortunes for oil and gas drillers.
Geopolitical developments have the potential to drive crude oil prices, and likely gas prices, even higher.
Oil prices in the U.S. have already risen to more than $70 per barrel from below $30 per barrel in 2016, driven by an OPEC cutback agreement with Russia as well as supply disruptions.
The biggest supply reduction has come from Venezuela, a country with the world’s largest oil reserves where crude output has dropped by 200,000 barrels a day this year, to 1.42 million barrels a day, a 15-year low.
Venezuela’s government-run oil industry is riven with mismanagement, and the country is suffering from a financial crisis with shortages of food and medicine.
“The collapse of Venezuela has taken more oil off the market accidentally than the largest producer of OPEC, Saudi Arabia, has cut purposely,” Book said.
Energy experts also warn of future price increases caused by impending U.S. oil sanctions on Iran after President Trump abandoned the nuclear agreement with Tehran.
“Iran has provided some momentum for higher oil prices,” McMonigle said. “There is a lag effect with that. Gas prices don’t automatically climb when prices go up. That’s not to say they won’t. There probably will be an increase. But a lot of factors go into that.”
