Gasoline prices are near their high for the year but they will be at an 11-year low for drivers this Memorial Day weekend — when the summer driving season officially begins.
Tom Kloza, global head of energy analysis at Oil Price Information Service, said he expects gasoline to be around $2.29 over the Memorial Day weekend of May 28-30.
Drivers should see the lowest gasoline prices at the pump for the holiday weekend since 2005 when unleaded was averaging $2.07 per gallon. Last year, Memorial Day gas was about $2.74 per gallon.
The average retail price nationally for unleaded gasoline Thursday was $2.26 per gallon, the high for the year. That is up 2 cents since Wednesday and 6 cents in the last week, according to AAA.
"I think the national average is going to peak somewhere between $2.25 and $2.50. It's on a trajectory where it peaks somewhere between now and flag day (June 14)," said Kloza. "The crude market has firmed. Gasoline is just following crude for the most part."
But demand also has risen and should come in at a record high. "I suspect it will be the highest number of drivers hitting the road ever" for the holiday weekend, he said.
Gasoline demand has been strong, running at about a four-week average of 9.6 million barrels a day. "It's a function of the low pump price and strong employment," said John Kilduff, partner at Again Capital. "There's just too much around, even with the big drawdown in gasoline inventories last week, we're just so well-supplied."
On Thursday, the American Petroleum Institute, said total motor gasoline deliveries last month rose 2.5 percent from last year, to average nearly 9.4 million barrels per day. That is a measure of consumer gasoline demand, and it was the highest for April deliveries ever. Distillate deliveries averaged above 4 million barrels per day, up 1 percent compared with April 2015.
Kloza said there could be roughly 9.7 million barrels a day of demand over the Memorial Day weekend.
"We are going to break the all-time consumption record established in 2007, which was 9.286 million barrels (a day) on average for the year," he said. "What people don't realize is we added a million barrels a day of refining capacity since then."
Part of the recent move higher in oil has to do with the outage of about 1.2 million barrels a day in Canadian production, the result of fires burning near the oil sands. West Texas Intermediate futures traded lower Thursday as the dollar rose on expectations of a Fed rate hike.
Kloza said the loss of both synthetic crude and oil from Canada has not created shortages in North America because of the abundance of supply, and refiners have been able to find other sources.
"We have the highest gasoline inventory going into a Memorial Day ... probably ever," he said.
Kloza also expects drivers to spend about $932 million on gasoline for the holiday weekend. "That's actually a tad higher than the 2009 total, which saw lower prices but considerably lower demand," he said. In 2009, $927 million was spent but in recent years drivers spent more than $1 billion simply because gasoline was more expensive.
Higher refining utilization as refiners move out of the maintenance season and greater capacity should keep the amount of refined product at elevated levels.
"Production is going to be higher in six weeks than it is now. Globally that's going to be ramped up. Almost all of the refinery work in the U.S. wraps up within the next two weeks," Kloza said.
"You can't get rid of a glut in crude oil without turning it into refined products. There's going to mean risk production. ... It could mean that gasoline which trades at $15 over crude might trade at $10 over crude," Kloza said.
Some analysts have raised their forecasts to expect a quicker end to the oil supply glut because of global outages. But many still target prices around $50 at the end of the year since some of the outages, as in Canada, should be over within weeks.