The summer driving season and the resulting increase in fuel demand has officially begun. After more than two years of the pandemic and countless canceled vacations, people are eager to reinstate their summer travel plans. The question, however, is whether higher prices at the pump will hamper those plans.
Historically, seasonal variations have driven fuel demand and prices higher at this time of year. Another contributing factor to higher prices at the pump in the summer is the additional cost of making fuels to summer specifications. Finally, consider the complexity of current events, including global supply pressure caused by the pandemic, U.S. refinery shutdowns, and Russia’s invasion of Ukraine, as other contributing factors impacting current fuel prices.
READ MORE: Why effective hurricane preparedness depends on better understanding your supply chain
According to the US Energy Information Administration (EIA), fuel consumption is expected to increase. The EIA expects gasoline consumption in the United States from April to September to increase by almost 1% this year. Globally, total demand is expected to rise 1.3% this year, according to the International Energy Agency (IEA).
Additionally, a Yahoo!/Maru Public Opinion poll in early May asked whether high fuel prices would discourage Americans’ summer travel plans. Sixty-six percent of respondents said they had made or would make significant changes to their driving habits if the national average fuel price per gallon increased much more than the then-current average of $4.33/gallon. The remaining respondents (34%) said it would take the average price to reach $5/gal for them to change their driving plans.
Now that gasoline prices have jumped above $5 a gallon, the White House is considering intervention, weighing the consequences of suspending U.S. environmental gasoline rules and restricting gasoline and diesel exports to control high prices. To reduce summer smog, refiners and blenders are required to avoid lower cost components like butane in summer gasoline. In May, the White House administration had already lifted the requirement for summer sales of E15, a gasoline with high ethanol content at low prices. The proposed new derogation would extend the current scope and apply to all grades of petrol.
In addition, the House recently passed the Food and Fuel Cost Reduction Act, which is expected to mitigate supply risks, reduce the cost of food and fuel, and reduce summer restrictions on gasoline. E15. The most recently posed solution was to impose limits on gasoline and diesel exports, a plea that has nothing to do with a complete ban on foreign sales of petroleum products. Many unknowns remain and we can expect decisions to be announced in the coming weeks.
READ MORE: Myth vs. Reality: First Steps to Supply Chain Optimization
Whether the White House can remedy a fix for the high prices or whether Americans are forced to choose between canceling their summer plans for now another one year or choosing to pay fuel premiums to save their time resting and relaxing at the beach will be crucial for retailers as they strive to optimize their supply network, particularly their supply levels and replenishment schedule.