U.S. Travelers Defiant Amid Record-High Gasoline Prices

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--U.S. motorists are still expected to hit the road in droves during the upcoming Fourth of July holiday, despite soaring retail gasoline prices, according to AAA.

The travel club anticipates that some 42 million people will travel more than 50 miles by road for the upcoming holiday weekend. That would set a record if forecasts prove accurate.

And it comes at a time when inflationary pressures, led overwhelmingly by the price of commodities such as crude oil and gasoline, are pushing the U.S. economy toward recession. While off the peak of $5.01 per gallon set June 14, retail gasoline prices were still high at $4.87 per gallon as of Wednesday.

The average retail price for a gallon of regular unleaded was $3.10 as of June 29, 2021. That's an inflation rate of close to 50% year-over-year.

Meanwhile, the U.S. economy seems to be headed toward recession, either due to cyclical factors or by design. The U.S. Federal Reserve has committed to upping its lending rates this year in an effort to control spending and inflation. That could lead to layoffs in some economic segments.

The working definition of a technical recession is a negative reading for gross domestic product (GDP) over two consecutive quarters, which usually includes company failures and job losses across the economy.

U.S. GDP during the first quarter declined at an annual rate of 1.6%, a deeper contraction than previously estimated. A snapshot estimate from the Federal Reserve Bank of Atlanta puts second-quarter GDP at 0.3%, showing the economy is already teetering on the brink.

Meanwhile, high gasoline prices may stick around for the foreseeable future. Commodity prices already were moving higher in 2021, on the back of resurgent demand in the post-vaccine stage of the COVID-19 pandemic and supply-chain bottlenecks. Sanctions that greeted Russia's invasion of Ukraine in February have only compounded the supply-side strains.

The Biden administration is trying desperately to bring prices lower for consumers, proposing a gas tax holiday that would run through the summer holiday season, which ends unofficially with the Labor Day holiday weekend in September. That proposal, however, is unlikely to make its way through the hyper-partisan U.S. Congress.

Biden already tapped into the nation's strategic reserves in an effort to control the spike in global commodity prices. But there's only so much that one nation can do. Apart from Russia, OPEC-member Libya is beset with internal conflicts that limit its full production potential, and several other major producers are unable to produce more because of logistical reasons or because of Western-backed sanctions, as in the case of Iran and Venezuela.

Iran and Venezuela could return to the global market, but that does little to address some of the other issues leading to higher prices at the pump. U.S. refineries are running at close to full tilt, turning crude oil into useful products such as gasoline. But refineries are closing. The Energy Department notes that refinery capacity decreased last year for the second year in a row.

Elsewhere, pipelines are a major issue in some segments of the U.S. economy. A ransomware attack on a key East Coast artery, the Colonial fuels pipeline, in May 2021 caused widespread flight cancellations due to the lack of supply. In parts of the U.S. South, meanwhile, some retail service centers ran out of gasoline, and retail prices at that time hit their highest level since 2014. A repeat of that scenario would be unbearable in the current price climate.

Gasoline inventories, meanwhile, are depleting further amid demand strains. It remains to be seen if the U.S. consumer is ignorant of the impact that rising gasoline prices have on household incomes, but the strain will be durable.

The U.S. Department of Energy said it expects gasoline prices to average $4.27 during the third quarter.

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