With the Memorial Day weekend beginning, road trips are coming at the highest cost since 2014.
Gasoline prices have risen sharply in recent weeks, hitting a current average of $2.85 per gallon in the Twin Cities. That’s about 55 cents higher than a year ago. And Minnesota gas prices appear likely to head north of $3 per gallon this summer.
While seasonal factors are at play in the rising cost of gas, “the price of oil is taking the driver’s seat,” said Patrick DeHaan, head of petroleum analysis at GasBuddy, a fuel price tracking website.
Oil prices — now at just over $70 a barrel — have risen to heights not seen in 3½ years.
Underpinning the ascent is simple supply and demand. U.S. and worldwide economic growth has been strong, driving demand for oil. At the same time, key oil producing countries have stuck to their plans to curtail production, propping up prices.
Add a dash of geopolitical intrigue in key oil producing areas — Iran and Venezuela — and the recipe for higher oil and gasoline prices is complete.
But take succor: Fuel prices are still considerably below five-year highs recorded in 2013 and 2014 when oil was over $100 a barrel and Minnesota gas prices were often above $3.50 a gallon.
More than 41 million Americans are set to travel this Memorial Day weekend, nearly 5 percent more than a year ago and the most in more than a dozen years, according to AAA. Most of those travelers will be driving. With the U.S. economy relatively strong, summer driving excursions should be up, too.
Nationwide, drivers are paying $2.98 per gallon for gas, significantly higher than in Minnesota, according to GasBuddy. Minnesota is in the bottom one-third of all states as far as prices go, DeHaan said.
Twin Citians were paying between $2.40 and $2.60 a gallon for the first four months of 2018, and then prices shot up in May.
“It’s just a part of life, and it cost more in California,” said Akhmiri Sekhr-ra, about increasing fuel prices as she filled her car at a Bobby and Steve’s gas station in Minneapolis on Wednesday.
AAA said in a report Monday that Minnesota had the largest monthly gas price increase — 28 cents per gallon — of any state in the country. (Wisconsin was next at 27 cents.)
“The biggest contributor to that was the switch-over to summer blend,” said Madison VanGundy, a spokeswoman for Minneapolis AAA.
Every spring, refiners switch fuel blends so as not to produce smog and ozone in warmer months. By June 1, all gas stations must sell summer blend only.
The winter gasoline blend is a bit cheaper to produce. As the summer deadline nears, producers need to clear their winter fuel inventory, often selling it a discount, said DeHaan of GasBuddy.
Both GasBuddy and AAA are forecasting prices to top $3 nationally, including in Minnesota. But neither sees gasoline prices running up into the mid-$3 range.
The direction of oil prices, of course, will likely be the deciding factor. And the global petroleum market lately has been more swayed by geopolitical events than in recent years.
As the Venezuelan economy continues a multiyear meltdown, the country’s oil production has fallen, a decline that is accelerating, according to the most recent monthly report by the Paris-based International Energy Agency (IEA).
Then there’s the U.S. pullout from the Iran nuclear deal, and the threat of sanctions on that country’s oil exports. The potential “double supply shortfall represented by Iran and Venezuela could present a major challenge for (other oil) producers to fend off sharp prices and fill the gap,” the IEA says.
On the other hand, U.S. oil production is booming at a pace not seen since 1970, compensating somewhat for shortfalls in oil output elsewhere.