If you’re hitting the road this holiday weekend, buckle up for the highest gas prices in several years. AAA’s website reports that the national average price of regular unleaded gas has climbed to $2.96, the highest level since late 2014. (Of course, some parts of the country are already paying quite a bit more. The national average encompasses a wide range of prices.) A year ago, the price at the pump averaged a much more wallet-friendly $2.37 per gallon, according to AAA.
And prices probably aren’t done climbing. Last month, I warned that the national average was likely to reach $3 this spring. That likely will hit Memorial Day weekend. Crude oil prices continue edging up, but such increases generally don’t reach the pump until a week or two later.
Drivers in the West have it worst, according to AAA. In California, regular-grade gas averages a whopping $3.72 per gallon, the highest in the country. Seven Western states are averaging more than $3. The Northeast isn’t faring much better; five states there are paying $3 or more, as are three Great Lakes states (Michigan, Indiana and Illinois).
Prices are far lower in the South. Mississippi drivers enjoy the cheapest gas—an average of $2.64 per gallon. Neighboring states are similarly low.
But there is some good news: The price gains may be nearly over. Jeff Lenard, vice president of strategic industry initiatives at NACS, a trade association that represents convenience stores, says that prices tend to rise in late winter and peak around now. Whether that happens this year depends on what crude oil prices do. I believe that the rally in oil prices is almost over. If so, gasoline prices should peak soon and maybe even retreat slightly.
Even so, gas prices are certain to remain higher than they’ve been the last few years. The national average price actually dropped below $2 per gallon in early 2016 and has mostly remained closer to $2 than $3 since. Consumers no doubt enjoyed paying less at the pump. Many folks have been buying pickup trucks and SUVs instead of cars, partly because they aren’t worrying about fuel economy. And in general, spending less on a fill-up leaves money for other purchases.
A recent NACS survey shows that consumers don’t plan to cut back on driving this holiday weekend just because gas prices are up. But many respondents do plan to eat out less or cut back other spending. Gas prices aren’t necessarily the culprit, but Lenard notes that consumers “just don’t feel as good” when gas goes up. And lately, there’s been a “daily drumbeat” of news about higher gas prices: Something motorists are reminded of every time they pass their local station.
For convenience stores that sell gas, this is particularly concerning when it comes to the roughly 25% of customers who pay cash. Lenard says that those shoppers tend to allocate a fixed amount to spend at the convenience store, whether on gasoline or snacks or drinks. If filling up takes more of that cash, sales of everything else suffer. Convenience stores make only a nickel of profit per gallon of gas they sell; they’d rather you buy a sandwich or a soda than a gallon of regular.
With the overall economy doing well and summer arriving, consumer spending will likely continue at a brisk clip, despite higher fuel costs. But merchants everywhere are no doubt rooting for pump prices to level off before their customers start feeling real pain.