Time For A Road Trip? Gas Prices Fall As Summer Approaches

May 24, 2010
Gas Pumps

Gas Pumps

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Folks driving to the beach or amusement park this Memorial Day weekend should be in for a pleasant surprise: lower prices at the pump. And although the holiday itself is all-American, Europe deserves credit for the gas price plunge.

The slide began a couple of months ago, as the cost of crude oil began to falter. According to analysts, the oil turmoil isn't tied to any particular event; it's the result of generalized anxiety in the financial markets, mostly having to do with Europe's very big, potentially very disastrous debt problem. Given the gravity of what's going on the Continent -- particularly in Greece -- there's a great deal of concern about the pace of the world's recovery from the economic troubles we've seen seeing since 2008. (FYI, China's take on the situation is particularly grim.)

How does this affect gas prices? Well, if the world's economies backslide, demand for gas and oil will, too. As a result, oil futures have been plummeting for the past few weeks, with May seeing the steepest decline: from near $90 per barrel at the beginning of the month to around $70 per barrel today. And that price is continuing to fall.

As of Friday, the average cost of a gallon of gas in the U.S. was $2.83. And since the retail price of gas is always a couple of days behind the price of oil, gas is likely to slip at least a few more cents this week, despite the approaching road trip-friendly holiday. (As a general rule, for every $1-per-barrel drop in the price of oil, gas prices drop about 2.4 cents a gallon.) In fact, even if oil prices were to rebound suddenly, drivers probably wouldn't see a bump until after Memorial Day.

As for the rest of the summer, most analysts don't see gas topping $3 per gallon -- or if it does, it shouldn't stay there long -- so the next few months could be prime road trip time. Not that we want to downplay the potential economic disaster looming across the pond or the ripple effect it could have on our own fragile economy, but c'mon: low gas prices and Darth Vader as a co-pilot? Count us in.

[WSJ, sub reqd]

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