Are Gas Prices Eating More of Your Paycheck This Summer?

by Lee Hernly, Editor
Consumers are spending $69 more a month to fill-up compared to last summer, according to AAA. Gas prices have increased 1 1/2 percent since summer of 2017.

Consumers are spending $69 more a month to fill-up compared to last summer, according to AAA.  Gasoline expenses are accounting, on average, for seven percent of an American’s 2018 annual income, a one and half percent increase since the summer of 2017. In the Washington metro area, spending on gasoline represented a larger share of income of residents of Washington, D.C., Prince George’s County, Maryland and Fredericksburg, Virginia, notes AAA Mid-Atlantic.

With a retail average price of $3.03 per gallon as of yesterday, consumers in the District of Columbia are spending $60.60 more per month to fill-up compared to last summer, or 5.9 percent of a resident’s annual income, a one-percent increase compared to the summer of 2017.

Compared to last summer, consumers in Montgomery County are spending $72.75 more a month for a fill-up (or 4.3 percent of a resident’s annual income, for a 0.9 percent increase). Meanwhile motorists in Prince George’s County are spending $71.06 more a month to fill their gasoline tanks (that equates to 5.5 percent of a resident’s annual income, comprising a 1.1 percent increase over the summer of 2017). The statewide retail average in Maryland was $2.88 a gallon yesterday.

Across the Potomac River in Virginia, consumers in Fairfax County are spending $71.31 more per month to fill-up compared to last summer, or 3.7 percent of a resident’s annual income, a 0.8 percent increase compared to the summer of 2017. In terms of gas spending in Fredericksburg, residents find themselves spending ­­$73.42 more per month to fill-up compared to last summer, or 7 percent of a resident’s annual income, a 1.43 percent increase compared to the summer of 2017. Yesterday’s statewide retail average price was $2.69 per gallon. Across the Washington metro area spending on gas represented a larger share of low-income earners than high-income earners, as gasoline prices rise.

With strong summer consumer gasoline demand expected in the months ahead, AAA says motorists can expect little relief at the pump with the national gas price average ranging from $2.85 to $3.05 per gallon through Labor Day.

“Motorists can expect to spend at least $250 more on gas this season, but that won’t stop them from traveling. Summer is synonymous with road trips and vacations and we are not going to see Americans giving up this pastime this year,” said Jeanette Casselano, AAA spokesperson. “The higher gas prices may just encourage travelers to shorten their driving distances. While others may pinch pennies by eating out less or finding more free family-fun activities while on vacation.”

According to a nationwide AAA survey conducted earlier this year, only one in three (33 percent) respondents said they would change travel plans if gas prices hit $3, while nearly half (47 percent) say $3.50 would be a game changer for their summer plans. Of those survey respondents in the northeast, one quarter (25 percent) of respondents said they would change travel plans if gas prices hit $3, while nearly four in ten respondents (39 percent) say $3.50 would be high enough for them to change their summer plans.

“Rising gasoline prices really hit the ‘hip-pocket’ nerve of motorists, disproportionately impacting low-income individuals and younger Americans. Consumers quickly alter their discretionary spending habits when pump prices go up, as they have of recent,” said John B. Townsend II, AAA Mid-Atlantic’s Manager of Public and Government Affairs. “When it comes to the pain at the pump experienced by area motorists and consumers, Washington, D.C. is one of the most expensive places on the East Coast to purchase gasoline. In terms of profitability, Washington, D.C. also tops the list of the ‘best earning metro markets’ in the country with a profit margin of 47 cents per gallon.”

Then and Now Price Points: June 2017 vs. June 2018

As vacationers hit the road, they will find a quarter (25 percent) of all gas stations across the country are selling gas for more than $3/gallon. That is a stark difference from one year ago when only 5 percent of stations post a price mark of $3 or more. The chart below compares the percentage of stations per state selling gas for $3.01 or more today versus one year ago.

State June 2017: Percentage of gas station selling $3.01+ June 2018: Percentage of gas station selling $3.01+
District of Columbia 5% 36%
Maryland 0% 11%
Virginia 0% 1%

 Don’t Let Your Tank Break Your Bank.

For when you are behind the wheel this summer, AAA offers these tips to improve your driving to get better gas mileage:

  • Observe the speed limit. Not only is it safer, it can help you save money.
  • Lose the weight. The heavier your car, the more fuel it uses.
  • Accelerate gradually. Avoid jackrabbit starts.
  • Drive during cooler parts of the day. Cooler, denser air can boost power and mileage.
  • Maintain recommended tire pressure. Low pressure reduces fuel economy and can damage tires.

 The Outliers

Gas prices have shown some positive downward movement at the start of the month, but it is too early to determine if this is a trend. AAA has identified the following outliers that have the ability to drive gas prices – up or down – in the coming months.

  • OPEC – This year, global demand has outpaced global supply, which has driven the cost of crude oil to near-three year highs of $72/bbl in May. Since Memorial Day, there have been conflicting reports that OPEC – which made a pact with other large producers to cut crude production in 2017 to help drain the then-glut of global supply – may or may not increase production to help ease supply concerns. The speculative news is already having a volatile impact, driving the price of crude down to $64/bbl and up to as high as $65/bbl levels in June. OPEC may announce a decision on increasing supply at its next meeting on June 22 in Vienna, Austria. Should OPEC and its partners increase supply, motorists would likely see pump prices decrease in late summer.
  • Hurricanes – Hurricane season is underway (June 1 – November 30). According to the National Oceanic and Atmospheric Administration (NOAA), there is a 75 percent chance of a “near- or above-normal” level of major storms this year. Moreover, NOAA’s forecasters predict a 70 percent chance of 10-16 named storms – of which five to nine could become hurricanes with winds of at least 74 miles per hour. The mere threat of a storm could force oil and gasoline companies, especially along the Gulf Coast, to halt gas operations, potentially leading to spikes in gas prices and limited regional supply.
  • Exports – Gasoline exports from the U.S. have grown throughout 2018. In fact, the Energy Information Administration’s (EIA’s) final measurement for March 2018 showed that exports hit 951,000 b/d and became the highest March rate on record. This trend is likely to continue throughout the summer, growing closer to one million b/d, which could help boost gas prices domestically because of robust demand. More than half of the U.S. gasoline exports go to Mexico, according to EIA.
  • Demand – According to the EIA’s latest reading for consumer gasoline demand, March 2018 saw nearly 9.45 million b/d, representing the strongest demand measurement for a March on record and a one percent increase from last year. AAA expects the high and potentially record-breaking consumer demand trend to continue through the summer, pushing prices higher.

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