According to AAA, the estimated 37 million travelers who will hit the road over the Memorial Day holiday period this year (May 24 through May 28) will be paying the highest price for gasoline in four years.
"Compared to an average of the last three Memorial Day weekends, pump prices are nearly 50 cents more expensive and climbing," said Jeanette Casselano, AAA spokesperson, in a statement. "Trends are indicating that this summer is likely to bring the national average to at least $3 per gallon."
As of May 23, some 14 states touted an average of $3 per gallon or more for gasoline. Outside of the typical West Coast states, Idaho and Utah, that number included six Northeast and Mid-West states: Connecticut, Pennsylvania, New York, Washington, D.C., Illinois and Michigan. In addition, Arizona, New Jersey, and Rhode Island were within four-cents of hitting the $3 per gallon mark.
According to data tracked by the Energy Information Administration, the national average for gasoline topped $2.923 per gallon as of May 21 – 52.4 cents per gallon higher compared to 2017 – while the national average for diesel fuel reached $3.277 per gallon, which is 73.8 cents per gallon higher than last year.
Rising crude oil prices – which EIA said make up 57 percent and 50 percent, respectively, of the per-gallon price of gasoline and diesel – are what is driving U.S. prices higher and recent analysis by Swiss-investment bank UBS expects oil process to climber higher still.
The bank noted in an investment brief May 22 that the Brent global oil price indices is up 30 percent since December 2017; a jump that now ranks as the 11th largest price spike in the past seven decades.
"Disruptions in supply now look increasingly likely, [as] an intensification of U.S. political pressure on Venezuela and Iran has given oil prices another leg up," UBS noted in its brief. "Even if OPEC [the Organization for Petroleum Exporting Countries] seeks to offset supply disruptions, its efforts will eat into spare capacity and increase crude's upside risks."
As a result, the bank's six-month Brent price forecast is for oil to reach $80 per barrel.
"The global sweet spot — where oil prices may have positively contributed to global growth — seems to be somewhere between $50 and $70 a barrel," UBS noted in its brief. "However, $80 oil today means something very different than it did for our parents."
Measured in constant dollars, the spike, while large, is smaller than the oil price spikes that preceded past economic recessions, the bank noted.
On top of that, "the world economy relies less on oil," it said.
In real terms, UBS explained that oil prices are still below where they were during most of the 2005-2015 period, meaning $80 per barrel oil today is equivalent to $67 per barrel oil in 2008 dollars. "And global oil intensity – the units of oil equivalent needed to produce one unit of real GDP – continues to decline [as] the world economy needs 7 percent less oil to produce the same amount of GDP [gross domestic product] as in 2007," the bank noted in its brief.
The U.S. has also become less vulnerable to higher oil prices as the large increase in U.S. shale production has "broken the historical correlation between the economy and oil prices," the bank said. "The U.S. is now a net beneficiary of higher oil prices, despite still being a small net oil importer. Overall, we see the impact of higher oil prices as having a relatively limited impact on global GDP."
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