The 2016 summer driving season is officially underway and drivers are paying the lowest gas prices for this time of year in more than a decade. Gas prices for yesterday’s Memorial Day holiday were the cheapest since 2005 and were down 42 cents per gallon versus last year’s holiday. Today’s average price of $2.32 per gallon represents an increase of three cents per gallon on the week, and consumers are paying 11 cents more per gallon on the month.
This year’s summer driving season is expected to be characterized by higher-than-normal gasoline demand, and demand remains on pace to test record levels reached in 2007. Refineries nationwide are working in preparation for what is likely to be record breaking season and if they are able to keep pace, pump prices should remain relatively lower.
A wildcard for gas prices in the coming months is the Atlantic Hurricane Season, which runs from June 1 – November 30. According to the National Oceanic and Atmospheric Administration’s Climate Prediction Center, this year’s season will likely be near normal, which means of the 10-16 named storms, four to eight could become hurricanes. Should any of these severe storms or hurricanes reach landfall, production, refining and distribution could be impacted. This can lead price spikes in regional markets along the coast and in areas that rely upon crude oil and refined product from these regions.
- The nation’s top five most expensive markets are: California ($2.81), Hawaii ($2.70), Alaska ($2.61), Washington ($2.60) and Washington, D.C. ($2.51).
- The nation’s top five least expensive markets are: Mississippi ($2.09), Texas ($2.09), South Carolina ($2.10), Arkansas ($2.11) and Louisiana ($2.11).
- Pump prices averaged $2.32 per gallon for Memorial Day, down 42 cents per gallon versus last year’s holiday.
- Gas prices averaged $2.25 per gallon in May, which was 44 cents per gallon less than a year ago and the cheapest average for the month since 2005.
ExxonMobil’s Torrance, Calif. refinery has returned to production and is helping to balance regional gasoline supply with growing seasonal demand. Gasoline production in the region is reportedly at its second-highest level for the year, and pump prices on the West Coast have held relatively steady on the week (+/-3 cents). Total gasoline inventories in the region are characterized as unseasonably high and the market appears to be well supplied. As a result, the region is well-represented in the rankings of the top ten largest yearly savings led by: California (-88 cents), Nevada (-80 cents), Alaska (-70 cents), Hawaii (-61 cents) and Arizona (-60 cents).
California ($2.81) and Hawaii ($2.70) remain the nation’s two most expensive markets for retail gasoline, and four of the nation’s top five most expensive markets are also located in the region. Gas prices on the West Coast are generally more expensive due to higher costs associated with getting fuel to market and specific regulations designed to help improve air-quality.
The Gulf Coast remains home to the nation’s least expensive markets for retail gasoline, Mississippi ($2.09) and Texas ($2.09). The region continues to weather the impacts of reduced production, due to a number of refineries conducting unplanned maintenance. The latest data from the U.S. EIA reflects a draw in gasoline stocks in the region, but inventories remain well over year-ago levels, and pump prices held relatively steady on the week (+/- 3 cents).
As the 2016 Atlantic Hurricane Season gets underway, attention will be focused on this region because it is home to over 45 percent of the U.S.’s total petroleum refining capacity. Severe weather can disrupt operations in this region, which can lead to shortages in supply, and historically we have seen this lead to spikes in the price at the pump nationwide.
The Midwest is posting the nation’s largest decline in gasoline inventories, which fell for the 15th week straight to 2016 lows. In advance of the Memorial Day Holiday, Michigan’s Governor Rick Snyder issued a state of emergency to address potential supply concerns attributed to an outage at Marathon’s Detroit refinery, and supply is described as tight throughout the region. A number of refineries in the region are also reporting challenges, and reduced production, combined with sustained demand, are believed to be behind prices moving noticeably higher in the region.
Gas prices in Michigan ($2.50) and Illinois ($2.48) join in the rankings as the nation’s top 10 most expensive markets, and Indiana (+8 cents), Iowa (+6 cents) and Illinois (+6 cents) are posting the nation’s largest increases in the price of gasoline on the week. Prices are up by a dime or more per gallon in nearly every Midwestern state versus one month ago, and the refinery utilization rate in the region remains the second-lowest nationwide. Pump prices may remain volatile in the coming weeks as long as refineries issues continue.
Gasoline stocks reached their highest level on record for this time of year, imports to the region are also robust and the market is expected to remain well supplied in the near term. The Northeast is showing the largest year-over-year growth in vehicle miles traveled, followed by the South Atlantic region. This growth in demand appears to be offset by the region’s abundant supply, which should help keep a lid on prices as we enter the busy summer driving season.
Oil Market Dynamics
Over the past week both global crude oil benchmarks, Brent and West Texas Intermediate, exceeded the $50 per barrel threshold due to expectations of tightening supply. The wildfires in the Canadian Oil Sands and geopolitical tensions in Nigeria and Libya helped to boost the price. Crude oil is also reportedly gaining strength on a weakening U.S. dollar which makes oil less expensive for countries holding other currencies. Attention is now focused on OPEC’s next meeting, scheduled for June 2, though the cartel may continue its current course of action and refrain from cutting production to help balance the market.
At the close of Friday’s formal trading session on the NYMEX, WTI closed down 15 cents to settle at $49.33 per barrel.
Motorists can find current gas prices along their route with the free AAA Mobile app for iPhone, iPad and Android. The app can also be used to map a route, find discounts, book a hotel and access AAA roadside assistance. Learn more at AAA.com/mobile.