Undeterred by record gasoline prices, which burst above the psychologically-important $2 a gallon threshold Monday, U.S. vacationers will travel more this Memorial Day weekend than last year thanks to a recovering economy, the AAA said Tuesday.
The U.S. motorist and travel group said some 30.9 million travelers, up 3.4 percent from last year, will drive 50 miles or more by car this Memorial Day, the traditional start of the peak summer driving season in the United States. Another 4.1 million plan to travel by plane, up 5.3 percent from last year, according to the annual AAA survey.
"This year, travelers have largely ignored some higher costs in their desire to return to their traveling ways," said AAA vice president Sandra Hughes in a news release. Travelers also feel more secure than last Memorial Day, which came weeks after the U.S.-led invasion in Iraq, the survey said.
The AAA survey results come as gasoline prices continue to climb.
On Monday, as oil prices surged close to $42 a barrel, a new record high, the U.S. Energy Information Administration (EIA), the Energy Department's analytical arm, reported in its weekly survey of service stations that the national average price for retail gasoline has leapt 7.6 cents over the last week to a record high $2.017 a gallon. The latest pump price for regular unleaded gasoline is up 52 cents from a year ago, the EIA said.
Separately, the U.S. Department of Energy said earlier this month it expects the national average for regular gasoline pries to be about $1.94 this summer, a significant rise over the $1.76 per gallon it projected last month for the April-through-September period. The EIA has forecast that gasoline will peak at $2.03 a gallon in June, but it now appears the price may go higher.
Fuel prices are climbing because of strong demand for gasoline and higher crude oil prices, which account for almost half the cost of gasoline. When adjusted for inflation in 2004 dollars, the highest price was $2.99 a gallon in March 1981, according to the EIA.
Gasoline prices typically taper off toward Labor Day, but this year oil refineries are running flat out, so any breakdowns could produce additional price spikes over the summer, experts say.
Another problem comes from reformulated summer blends. Air quality standards around the country mean different blends of gasoline are required for different regions. Shortages in certain regions where only a certain blend is permitted can drive up prices.
Tapping into stockpile ruled out
The Bush administration has been criticized for not taking action to find consumers some relief at the pump. Some Democrats want the Bush administration to lower gas prices by releasing up to 60 million barrels of crude oil from the nation's emergency Strategic Petroleum Reserve.
But U.S. Energy Secretary Spencer Abraham, who plans to meet with the Saudi oil minister later this week to discuss OPEC oil production, has ruled out using the stockpile.
“It’s the emergency oil fund for this country in the event that a terrorist act, or any other activity in the world, might cease or suspend the production or delivery of oil into the marketplace,” Abraham told reporters. “In the war against terror, we’re going to be prepared. And the way to be prepared is to fill this reserve,” he said.
Critics say the White House should temporarily stop adding oil to the stockpile, which they believe has taken badly-needed crude off the market and caused gasoline prices to rise. The Strategic Petroleum Reserve, created in the mid-1970s, now holds about 660 million barrels. The administration aims to have 700 million barrels in it next year and will not “play games” with the reserve to ease gasoline prices now, Abraham said.
The Bush administration will discuss OPEC's crude oil production with Saudi Arabia, which has proposed the cartel boost output by 1.5 million barrels per day, said Abraham. He plans to meet with Saudi officials this week on the sidelines of an Amsterdam conference where oil producing and consuming nations will discuss energy issues.
"We'll be discussing exactly what that means," said Abraham, referring to Saudi Arabia's proposal for OPEC to increase its official production ceiling by 1.5 million barrels per day. Traders have expressed skepticism since OPEC is already pumping more than 2 million barrels per day above its official quota.
Consumer spending eyed
Rising prices at the pump are apparently shifting consumers' spending habits, according to a survey by the National Retail Federation, the world's largest retail trade association, leading some consumers to scale back on vacation plans, new clothes and even groceries.
In its 2004 Gas Prices Consumer Intentions and Actions Survey, the association found that although nearly half of consumers do not believe gas prices will have a major impact on their spending, nearly a third plan to trim or halt travel and vacation plans due to rising gas prices, while almost 30 percent plan to reduce the number of times they eat out. Twenty-one percent will spend less on clothing and 16 percent will cut back on groceries.
"Retailers know that when consumers are forced to spend more of their disposable income on gasoline, they will scale back spending in other areas," said NRF President and CEO Tracy Mullin. "Ultimately, higher prices at the pump act as an additional tax on consumers, and consumers don't like to be taxed."