NEW YORK — As millions of travelers hit the road for the Memorial Day holiday weekend, high gasoline prices fueled by supply disruptions from the war with Iran are set to add financial strain for motorists, kicking off what is set to be a pricier summer travel season.
U.S. retail gasoline prices jumped more than $1.50 per gallon, or about 45%, since late February, when the United States and Israel launched attacks on Iran. Prices for crude oil used to make gasoline also surged, along with prices for many goods, as the conflict led to the effective closure of the Strait of Hormuz, a key trade conduit through which about a fifth of the world's oil typically transits.
US gas prices have crossed four dollars a gallon and JPMorgan warns five dollars is coming by summer as the Iran war keeps the Strait of Hormuz closed.
President Donald Trump faces mounting political pressure as households grapple with higher energy costs. Several states suspended gas taxes to ease the pain at the pump, and similar discussions about reducing the 18.4-cent federal gasoline tax are underway.
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This Memorial Day weekend, a three-day weekend during which many Americans take to the road, kicks off the summer travel season. Even with higher gas prices, a record of 39.1 million people are expected to travel by car and 3.66 million by plane to their destinations, according to American Automobile Association data.
"This is the most volatile summer at the pump in years, and the Strait of Hormuz closure is at the center of it," said Patrick De Haan, head of petroleum analysis at GasBuddy, adding that Americans are going to pay billions more to get where they're going this summer, and even after the strait reopens. It could take a year or more for prices to fully recover, he added.
Traffic moves past a banner on Fenway Park on May 13 in Boston, Mass.
Higher costs, shorter trips
Still, travelers plan to drive fewer miles this summer, reflecting the financial strain prolonged high energy prices have on American motorists.
Just 56% of Americans now plan to drive more than two hours this summer, compared to 69% last year, a new GasBuddy survey shows. Cost is now the dominant travel consideration, with 67% saying gas prices directly affect their driving plans and 36% saying rising costs cause them to take fewer road trips, the survey shows.
Despite prices at the pump hovering at their highest level in four years, gasoline consumption remained relatively strong, analysts said. However, they warned a supply shortage could be on the horizon.
"Gasoline storage has fallen for fourteen weeks in a row, and every week during the war in Iran, and we are going to stagger into Memorial Day weekend, the start of the summer driving season, within striking distance of the 11-year low," said Bob Yawger, director of energy futures at Mizuho. "We are in big trouble as far as gasoline is concerned."
U.S. gasoline inventories fell by 1.5 million barrels last week to 214.2 million barrels, the Energy Information Administration said Wednesday, compared with analysts' expectations in a Reuters poll for a 2.1 million-barrel draw.
On top of uncertainty that still looms over the Middle East, recent refinery outages, the approaching Atlantic hurricane season and tightening global inventories will add further upward pressure to fuel costs.
The national average price of gasoline is projected to be $1.48 more expensive this Memorial Day compared to last year, GasBuddy forecast Wednesday, adding if traffic through the Strait of Hormuz remained restricted for much of the summer, prices could cross the $5-per-gallon mark.
"We have to be very concerned that globally we're drawing inventories at a terrific pace, and global demand is finding its way here not just for crude, but for refined products," said John Kilduff, partner at Again Capital.
