AS GAS PRICES RATTLE ECONOMY, AMERICANS CAN’T STAY OFF THE ROAD
Energy industry analysts see little relief on the horizon
The shocks of high gasoline costs are ricocheting through the economy, and industry analysts see little relief on the horizon.
Retailers and trucking companies are in a state of high anxiety over worsening diesel shortages that may lead to intermittent rationing in some places. Similar worries are gripping the airline industry as jet fuel becomes more scarce. Manufacturers are wrestling with the cost of plastic packaging, which is made from the same crude oil in high demand for gasoline. Even boaters are weighing whether they should delay putting their vessels in the water, now that filling their tanks can run hundreds of dollars more.
The price spikes are even affecting school meals. In Davenport, Iowa, snacks of rainbow carrots and other fresh fruits and vegetables delivered as part of a federal grant to promote healthy eating were suddenly in jeopardy as gas prices surged past $4. The vendor had tacked on extra charges
to cover the high price of fuel, forcing some schools to end deliveries early.
Troubles with bread came next. The company delivering it first asked for hefty fuel surcharges before ultimately telling the district not to bother. It said it can’t afford to keep loaves coming to schools next year at all. The district has turned to another company, paying nearly double — $40,000 more — for less frequent deliveries.
“It’s very stressful,” said
Coni Dobbels, the Davenport school district’s director of food and nutrition services. “People keep saying, ‘Aren’t things at schools better this year than they were last year?’ They’re not. I have never experienced anything like this.”
Gas prices have emerged as a particular worry amid other troubling signs about the U.S. economy. Fears that the country could be headed toward a recession, fanned by major retailers reporting lower earnings this week,
helped push the S&P 500 briefly into a bear market territory Friday before a late-day rally. Prices for food, shelter and other forms of energy have been steadily rising as well, fueling inflation.
The price of fuel keeps passing earlier milestones, now averaging more than $4.59 per gallon nationwide. That is 50 percent higher than gas was at this time last year, according to AAA, as factors converge to create supply shortages not seen since the run-up to the Great Recession in 2008.
While the war in Ukraine is playing a major role, with the world shunning Russian oil, it is not the only challenge. The plunge in fuel demand during the pandemic moved producers to cut back on their investments in drilling and refining capacity. The oil and gas sector now finds itself ill equipped to meet the demand of a society getting back on the road. The federal government has exhausted most of the limited tools it has to confront price spikes, such as releasing oil from the Strategic Petroleum Reserve.
“The bottom line is, it is going to be an expensive summer,” said Michael Tran, managing director for global energy strategy at RBC Capital Markets.
As climbing gas prices force Americans to change their spending habits, one thing Americans aren’t doing is driving significantly less. All that driving in this moment of low fuel supply is pushing prices up further. “As we reopen, there is a lot of pent-up demand,” Tran said. “People are willing to pay higher prices to make up for lost travel over the last few years.”
It is a different economic landscape than when gas prices last spiked like this, in the summer of 2008. At the time, Americans had been on a spending frenzy for a while and household savings rates were particularly low. Nonessential driving was a luxury more Americans could not afford then. Gas prices dropped again relatively quickly after a brief surge.
By contrast, household savings right now are at record highs, after people spent less during the coronavirus pandemic. “We were never, as a population, more ready to absorb high gas prices than we are right now,” Tran said. So even as prices keep going up, demand is not easing.
Memorial Day weekend is expected to bring 37.9 million Americans to the road, more than traveled by car over that holiday weekend before the pandemic hit and an increase of 8.5 percent over last year, when gas prices were considerably lower, according to projections by the location data firm Arrivalist. The firm attributes the trend, in part, to Americans forgoing air travel. Plane ticket prices have become prohibitively expensive for many as the airline industry struggles with its own fuel scarcity.