Gas edging up, but autos rolling

Summer trips to fuel demand

Customers pump gas Wednesday at an Exxon station at McCain and North Hills boulevards in North Little Rock. In Arkansas, the average price of regular unleaded was $1.85 a gallon Wednesday.
Customers pump gas Wednesday at an Exxon station at McCain and North Hills boulevards in North Little Rock. In Arkansas, the average price of regular unleaded was $1.85 a gallon Wednesday.

At many fuel pumps across the nation, gasoline prices are creeping upward, placing them on the path to surpass $2 a gallon for the first time in 2016.

photo

Arkansas Democrat-Gazette

Graphs showing Arkansas and U.S. gas prices.

But for U.S. consumers who have been experiencing some of the cheapest gasoline prices in years, the recent jump at the pump isn't expected to stop them from fueling up and hitting the road this summer, analysts say.

Instead, gasoline demand is on the rise, with some analysts saying there's a chance that summer demand could near highs not seen since 2007.

"People are driving a lot more -- they're taking that road trip that they didn't in the past when gasoline was $3.50," said Rob Lutts, president and chief investment officer for Cabot Wealth Management.

"If prices continue to stay low -- say we stay in low $40s for oil, and gasoline stays in a modest area -- we can have a very active driving season for the summer," he said. "I'm not sure if we can beat 2007, but I think demand can go much higher this year."

Since oil prices began to decline in 2014, they have dragged down gasoline prices, reducing fuel expenses for consumers.

The average cost of retail gasoline in Arkansas was $1.85 a gallon Wednesday, up from $1.50 a month ago. The national average of a gallon of gasoline was $1.99, up from $1.71 last month, according to AAA.

Oil has experienced a small recovery in prices lately, leading to a slight lift in gasoline prices. But the main driver behind the increase in gasoline is seasonal refinery maintenance, which nudges prices up every spring.

In seasonal maintenance, refineries switch from winter fuel to summer blends, which burn cleaner and are more expensive to refine. During this period, refineries do not process as much gasoline.

The refineries will ramp up production again in May when the maintenance ends, and in time for the driving season between Memorial Day and Labor Day.

Despite the recent jump in prices, gasoline remains cheaper than it was in 2015. Around this time last year, gasoline averaged $2.20 in Arkansas and $2.42 nationwide.

Prices are set to surpass $2 a gallon, but are expected to stay 30 cents to 50 cents cheaper than in 2015, said Tom Kloza, chief oil analyst for gasbuddy.com, which operates a price-tracking website.

When gas prices began to fall with oil prices, many economists and retailers expected U.S. consumers to take their fuel savings and spend it. However, consumers have opted to save their extra cash.

This behavior should help consumers cope with the increase at the pumps, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville.

"Given that consumers didn't do what we expected them to do ... with their gasoline savings, we will perhaps be a little bit insulated from the negative effects that you've seen when prices rise," she said.

So while the increase in prices has the potential to reduce consumers' disposal income, the jump won't dissuade people from driving because fuel is still cheaper than previous years, Deck said.

"I think that I would be surprised if consumers really drastically changed their behavior at this point -- even with prices going up," Deck said.

Kloza, who predicts gasoline will average $2.14 a gallon this year, said that in the past six weeks gasoline demand has been up nearly 7 percent.

In previous years, a 3 percent year-over-year increase was considered a big jump, he said, adding that "2016 is going to break the all-time record for gasoline consumption."

Kloza said that while he's somewhat skeptical about how large the increase in demand will be, "the data is suggesting that we are going to blast through the 2007 record."

A Section on 03/24/2016

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