By Brian L. Milne, Refined Fuels Editor for DTN
Wholesale costs for gasoline were mostly lower in the major metropolitan markets across the U.S. during the final week of June, which should slow the price increase at retail outlets.
Pass-through costs will continue to work through the supply chain from the oil refinery to the retail pump, so retail prices could continue higher in a number of markets through the July 4th weekend, with the holiday one of the busiest for automobile travel each year.
Travel by automobile is expected to decline during this year’s Independence Day weekend on a combination of climbing unemployment, uncertainty over the economy and increasing gasoline prices.
The national unemployment rate was last measured at 9.4% at the end of May, and expectations call for an increase to 9.6% during June. The higher the unemployment rate, which is expected to top 10% in the coming months, the less travel there is to and from work.
Additionally, a rising unemployment rate raises concerns by households over their finances, prompting less vacation travel. Indeed, the savings rate by Americans continues to climb.
Since the start of the second quarter on April 1 through June 22, the U.S. average for retail regular grade gasoline has increased 64 cents or 31.2% to $2.69 gallon. Retail gasoline prices are much higher for some parts of the country, including California which topped $3 gallon in June.
View DTN’s Weekly and Historical Gas Prices.
The rapid increase in gasoline prices is expected to have a modest impact on holiday travel this July 4th weekend. Economists worry however that climbing gasoline prices are cutting into discretionary spending by Americans which could slow the economic recovery.
Wholesale gasoline costs began slowing their upward trajectory in mid-June as national inventory levels started to build. Overall, gasoline demand remains lower so far this year than in 2008 too, limiting the upside potential for prices, which have followed the stock market higher.
There is a growing sentiment that the highs are in for the wholesale gasoline market, but that is far from certain. In addition to supply and demand data, the gasoline market will pay close attention to the overall health of the economy, with a belief that the recovery is nearing expected to push prices higher.
The reason, a growing economy uses more energy. The stock market is viewed as a leading indicator for the economic health of the country, so rallying stock prices have helped to drive the advance in crude oil and gasoline prices.
About the Author
Brian L. Milne is the Refined Fuels Editor for DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at [email protected].