You’ve likely seen the headlines about oil prices going up. They’ve been hard to miss. After all, prices have been rising for a while now – up six out of the last 7 weeks. As we currently hover around a 2016 peak just short of $50 a barrel, that’s over 75% higher than the 12-year low reached in February.
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What’s going on? In a nutshell, the oil market has moved closer to a production deficit, with outages and supply disruptions in Canada, Nigeria, Venezuela, and other producing regions, as demand has risen, says Patrick DeHaan, a senior petroleum analyst at GasBuddy.com, a consumer-driven crowdsourcing website that helps drivers find the cheapest gas in their area. “Every time there's a threat to supply that alters the delicate balance of fundamentals, the market spikes very quickly."
Higher crude oil costs always translates into higher gasoline costs. You feel this effect almost immediately, and it’s notable: every $1-a barrel increase in crude oil prices translates roughly into an increase of 2.38 cents/gallon at the gas pump.
Factor in seasonal patterns including maintenance production and an uptick in travel due to an improving economy, it’s costing you a lot more to fill your car up. In fact, gas prices are up nearly 7 cents from last week’s average of $2.22/gallon; about 16 cents higher than last month’s average of $2.14/gallon.
Last Week: $2.22/gallon
Last Month: $2.14/gallon
What about airfares? Fuel costs are the largest expense for the airlines, accounting for about 30% of their costs, says Patrick Surry, Chief Data Scientist at Hopper, the airfare prediction app. However it takes longer for producers of energy services, as such, to pass costs down to the consumer. “If oil prices were to stay elevated for a sustainable period of time (think: several months), then we could see upward pressure on prices.” However, countering that, to some degree, are increased industry capacity and competition. “The jump in fuel prices would have to be a really big one if airlines were to cut back on capacity.”
All of which begs the question: what’s ahead for oil prices? While the market will undoubtedly be volatile and unpredictable in the short term, the rally in oil could prove short-lived, says DeHaan.
And don’t expect a bullish surprise at the next OPEC meeting between oil producing countries on June 2. The meeting will be nothing more than a forum for a continued slugfest between Saudi Arabia and Iran. “They will try to drive prices higher with baseless comments that don’t translate into action,” says DeHaan. Smaller nations are expected to remain mute spectators.
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The message, behind all this oil talk, is this: pack your bags and take that much-needed vacation.
After all, summer gas prices, even with their recent uptick, are still nearly 50 cents lower than they were last year at this time. In fact, they’re at their lowest summer levels since 2005. “The current situation will not likely be repeated next summer,” says DeHaan.
As for summer airfares, they’re cheaper than they’ve been since 2009, says Surry, with average fares during the summer months ranging from a peak of $240 in June, and then dropping to $211 by August. “It’s a great time to travel—especially internationally, given the strength of the U.S. dollar. You’re paying less for the airline ticket and you’re spending less - on everything - once you hit the ground.”
Vera Gibbons is a financial journalist and Senior Consumer Analyst with www.GasBuddy.com. A former analyst with MSNBC who appeared regularly on the “Today Show,” Gibbons was previously a Financial Contributor with CBS News. She has written for Inc., SmartMoney, Kiplinger’s, Real Simple, CNN Money, All You, Zillow, The New York Times, and Fortune.com. Today, Gibbons appears regularly on Fox News and Fox Business News.