Memorial Day weekend is here and folks are getting ready to hit the road for the summer.
Swimming suit packed. Check.
Beach umbrella and chairs in the trunk. Check.
Gas prices going up. Check.
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It’s part of the vacation road rules: Memorial Day comes around and the price of gas goes up, immediately taking some of the fun out of the trip.
This year is no different. Though prices remain down significantly from a year ago, the average price for a gallon of regular unleaded gasoline in Texas has climbed for six weeks in a row, going up 12.5 percent to $2.51, according to the AAA Texas Fuel Gauge report.
Drivers in Dallas and Fort Worth should be aware that gas has been getting pricier. Dallas had the highest price gas among the state’s major metropolitan areas for 8 of the last 10 weeks, with Fort Worth and Arlington joining it at the top for two weeks, AAA statistics show.
On Wednesday, the average price for a gallon of unleaded gasoline in Dallas was $2.58 and in Fort Worth and Arlington it was $2.56. That’s 15 percent more for both cities since March 19, the travel and insurance agency reported.
“It’s just supply and demand,” said David Dunn of Weatherford, who was filling up his car at the QuikTrip on North Cooper in Arlington. “There’s a higher demand so it’s basic economics, I guess.”
Even with the increases, Texas motorists are paying 94 cents a gallon less than they paid last year before oil prices embarked on a big decline, according to AAA. One analyst predicts pump prices could go as low as $2 a gallon by the time the kids return to school in the fall.
“I would guess this week is the highest number for the driving season,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. “After Labor Day, in many parts of the country, the price will flirt with $2 a gallon instead of $2.75.”
Kloza said peak demand for gas is expected in the last week of July, after which the price will falter and begin to decline. His firm, OPIS, collects the data that is used by AAA nationally and in Texas to report changes in gasoline prices.
The U.S. Energy Information Administration projects that gas prices will average $2.55 a gallon from April to September, the lowest since 2009.
“It’s not like National Lampoon’s Vacation, as if someone gets in a station wagon and travels through the country for the driving season,” he said. “We’ll see a little higher demand because of the better economy and prices, but in September there will be more supply than demand.”
That summer blend
Several factors drive the price at the pump.
One, obviously, is oil prices. While oil no longer selling above $100 a barrel like last summer, it has inched back around $60 in the past week after dropping below $50 at the first of the year.
There also has been a decline in the nation’s crude oil inventory. The U.S. Energy Department said earlier this month that it dropped by 3.9 million barrels from the previous week after energy companies, hit hard by lower oil prices, began cutting back on the number of rigs in the field.
Each summer, refiners also switch the “blend” of gasoline to a fuel that burns cleaner to meet federal emission guidelines. This process begins in February and ends in June, but refineries must produce summer-blend no later than April and retailers must start selling it May 1, according to the National Association of Convenience Stores
The May deadline is considered one of the biggest factors in the seasonal gas price boost, since refineries face stiff fines if they don’t purge the winter blend and would rather have little to no inventory than pay penalties, the group reports.
As a result, six times from 2000 to 2014 gasoline’s peak prices for the year came between May 9 and May 24, according to the EIA. And according to agency information through May 11, the same is likely to be true this year.
“That switchover is the last point in the handoff that starts in February,” said Jeff Lenard, vice president for strategic industry initiatives at NACS. “We’re right in the middle of when they peak.”
And while there’s a misconception about how much demand jumps starting at Memorial Day, the NACS reports that even a 1 percent boost means an extra 90,000 barrels per day must be produced, the equivalent of a small refinery’s output.
“Demand is the biggest factor,” said Doug Shupe, a spokesman for AAA Texas. “Dallas, Fort Worth, sometimes Houston … the major centers of commerce see the prices higher at the pump.”
Of the major metro areas from March 19 to May 20, Dallas saw gas prices climb to $2.58 a gallon from $2.25, while Fort Worth and Arlington went from $2.23 to $2.56, AAA reported. The cheapest metro area during seven of the ten weeks was Beaumont, were gas went up 26 cents to $2.44 a gallon.
Even with all that, Brad Allen of Fort Worth wonders why the price of gas will vary so much from station to station, even if they are owned by the same company.
Allen lives on the west side of town, where a QuikTrip was charging $2.59 a gallon. So when he was in Arlington on Thursday and the QT on North Cooper was selling gas for $2.41, he filled up.
“It doesn’t make sense that there’s that much difference and all of them are QTs,” Allen said.
On the retail level, prices vary depending on issues such as transportation costs, the location of the gas station within a city and the length of the contract for buying fuel from a supplier, according to Bud Weinstein, an economist at the Maguire Energy Institute at Southern Methodist University.
Don’t forget competition, either.
The level of local competition plays a role, Weinstein said, along with “how far many people will go to save a few pennies a gallon.”
Lenard agrees, saying that retailers play a game of chicken when prices are on the way up and the way down. He said consumer studies show that drivers will go somewhere else to fill up if there is more than a few pennies difference in prices.
“One retailer said it is the psychology that they [consumers] will step over a quarter when filling up but you’ll drive five minutes out of the way to save a few cents a gallon,” Lenard said. “You’ll feel better if you think you got a deal. You feel like you’ve won.”
Most gas station owners make 3 to 5 cents per gallon in profit and they try to protect that profit margin as prices go up and down, according to Lenard and an NACS report.
For example, when wholesale prices for gas go up 5 cents a gallon, the station owner will absorb 2 cents to keep from scaring off customers. But when the wholesale price goes down 5 cents, the retailer will try to recover and only drop the price at the pump by 2 cents, he said.
If retailers are lucky, they’ll make 60 cents on a fill up, Lenard said. “When prices go up, more bad things happen than good,” he said.
But all Allen sees is that prices go up, not just at Memorial Day but all the holidays including Labor Day and the Fourth of July. It does take some of the fun out of the trip.
“It also makes it hard on the working man,” Allen said.
Max B. Baker, 817-390-7714