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Gas prices are down just in time for Fourth of July travel — here’s why

It is a cool breeze during hot weather, but it is not summer weather.

As record-breaking numbers of Americans pack up their cars and travel to Fourth of July barbecues that cost more than last year, they fill up at gas stations where they’re likely to pay a little less at the pump.

Believe it or not, national gas price averages have been going down lately. Little by little.

On Thursday, the average was $4.85 per gallon, reflecting a decline from mid-June, according to AAA data.

That was down a penny from the previous day, down nearly a dime from $4.94 a week earlier and down 16 cents from a record high of $5.01 set in mid-June. A gallon is still 20 cents more than it did a month ago and $1.74 more than a year ago.

According to Patrick de Haan, head of petroleum analysis at GasBuddy, drivers have seen average prices drop for two straight weeks, and the downward trend looks set to continue for a third week. Gas prices hit a record-high $5.03 on June 16, and the average price fell to $4.84, according to the Gas Price Aggregator.

De Haan said the price-easing trend “doesn’t look like it’s going to be brief.” He added that the welcome trend would probably continue into the fourth and fifth week as well. From that point, it’s too far to speculate about what the future holds, he said. There are a number of factors that could push prices back as the hurricane rolls down supply chains, De Haan noted.

Make no mistake, gas prices are still extraordinarily high and according to some forecasts could reach $6 per gallon by the end of summer.

Starting in California, millions of drivers are paying higher-than-average prices. There, drivers — now in line to receive “inflation compensation” checks from the state — are paying $6.28 per gallon by AAA count Thursday and $6.26 per gallon, according to GasBuddy’s data.

When inflation is hot and Russia’s war in Ukraine shows no signs of cooling, what will create a slight drop in gas prices? And how long can the trend continue as the summer driving season begins?

It’s a mix of oversupply, softening demand and fears of a macro-level recession, say oil investors.

For De Haan, the biggest reason is oversupply through more refining action. US refineries operated at 95% of their “operating capacity” in the week ending June 24, according to US Energy Information Administration data. That was the highest reading in 30 years, according to a note by Phil Flynn, senior market analyst at The Price Futures Group.

A month ago, the operational capacity rate was 92.6% and two months ago, it was 90.3%, De Haan said. The U.S. could benefit from more refining capacity, but the numbers show that the refineries that are operating are doing it faster, he said.

“The supply side of the equation is improving, and the demand side is holding up,” De Haan said, adding that higher prices have dampened demand to a certain extent for now.

According to AAA spokesman Devin Gladden, the US Energy Information Administration’s estimated daily amount of output is a demand gauge. It was 8.93 million barrels per day in the week ended June 24. The previous week, it was 8.943 million barrels.

“People can’t afford the higher prices,” Gladden said. That’s a theme that’s played out in some surveys, including a survey by Cars.com, with many drivers choosing nearby locations to save on gas.

Higher prices rarely scare away consumers and puncture demand in large quantities, said a Wednesday note from RBC Capital Markets. Over three decades, 39 months have seen prices rise by 30% year-on-year, the analysts wrote. When that happened, he noted, there was only 12 months, when demand fell by at least 2%.

There were five in 2008, but that didn’t work in comparison now, analysts said, because consumers are in better financial shape.

“Despite record pump prices, currently [consumer] “As a percentage of total spending, spending remains below historical averages,” the note said. “Also, when push comes to shove, discretionary spending may be pulled back before core items like gasoline really make an impact.”

Demand for holiday travel is likely to increase, bringing with it prices, Gladden said. “After that, prices may continue on a downward trajectory,” he said.

Gladden said oil prices are softening as investors consider what demand will be if a recession hits. “The downward trajectory will definitely be passed on to consumers.”

He warned them not to joke. As long as the price of crude oil – a key component of gas prices – remains above $100/barrel, no real relief is in sight. On Thursday, West Texas Intermediate crude for August delivery fell $4.01 to $105.77.

A break on state-level gas taxes could also be nipping at prices. Although skeptics call the move a gimmick.

For example, Georgia would shave between 16.8 cents and 18.8 cents per gallon off its gas tax, according to researchers at the Penn Wharton Budget Model. Connecticut’s gas tax freeze ends in June, and drivers have saved between 17.9 cents and 21.7 cents per gallon.

President Joe Biden wants lawmakers to pause the federal 18.4 percent gas tax over the summer, but analysts doubt that will happen.

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