By Nicole Jao
NEW YORK, May 21 (Reuters) – As millions of travelers hit the road for the U.S. Memorial Day holiday weekend, high gasoline prices fueled by ongoing supply disruptions from the war with Iran are set to add financial strain for motorists, kicking off what is set to become a pricier summer travel season.
U.S. retail gasoline prices have jumped more than $1.50 per gallon, or about 45%, since late February, when the United States and Israel launched attacks on Iran. Prices for crude oil used to make gasoline have also surged, along with prices for many goods, as the conflict has led to the effective closure of the Strait of Hormuz, a key trade conduit through which roughly 20% of the world’s oil consumption flows.
President Donald Trump is facing mounting political pressure as households grapple with higher energy costs. Several states are already suspending gas taxes to ease the pain at the pump, and similar discussions about reducing the 18.4-cent federal gasoline tax are underway.
This Memorial Day weekend, a three-day weekend during which many Americans take to the road, will kick off the summer travel season. Even with higher gas prices, a record of 39.1 million people are expected to travel by car and 3.66 million by plane to their destinations, according to American Automobile Association (AAA) data.
“This is the most volatile summer at the pump in years, and the Strait of Hormuz closure is at the center of it,” said Patrick De Haan, head of petroleum analysis at GasBuddy, adding that Americans are going to pay billions more to get where they’re going this summer, and even after the Strait reopens. It could take a year or more for prices to fully recover, he added.
HIGHER COSTS, SHORTER TRIPS
Still, travelers are planning to drive fewer miles this summer, reflecting the financial strain prolonged high energy prices have on American motorists.
Just 56% of Americans now plan to drive more than two hours this summer, compared to 69% last year, a new GasBuddy survey shows. Cost is now the dominant travel consideration, with 67% saying gas prices are directly impacting their driving plans and 36% saying rising costs are causing them to take fewer road trips, the survey shows.
Despite prices at the pump hovering at their highest level in four years, gasoline consumption remained relatively strong, analysts said, however, they warned a supply shortage could be on the horizon with summer travel season approaching.
“Gasoline storage has fallen for fourteen weeks in a row, and every week during the war in Iran, and we are going to stagger into Memorial Day weekend, the start of the summer driving season, within striking distance of the 11-year low,” said Bob Yawger, director of energy futures at Mizuho. “We are in big trouble as far as gasoline is concerned,” he said.
U.S. gasoline inventories fell by 1.5 million barrels last week to 214.2 million barrels, the Energy Information Administration said on Wednesday, compared with analysts’ expectations in a Reuters poll for a 2.1 million-barrel draw.
On top of uncertainty that still looms over the Middle East, recent refinery outages, the approaching Atlantic hurricane season and tightening global inventories will add further upward pressure to fuel costs.
The national average price of gasoline is projected to be $1.48 more expensive on this Memorial Day compared to last year, GasBuddy forecast on Wednesday showed, adding that if traffic through the Strait of Hormuz remained restricted for much of the summer, prices could cross the $5 per gallon mark.
“We have to be very concerned that globally we’re drawing inventories at a terrific pace, and global demand is finding its way here not just for crude, but for refined products,” said John Kilduff, partner at Again Capital.
(Reporting by Nicole Jao in New York; Additional reporting by Georgina McCartney in Houston; Editing by Stephen Coates)
