No pain at the pump this Memorial Day

By Chavon Sutton, staff reporter


NEW YORK (CNNMoney.com) -- Gas prices have been drifting lower over the past week, which is welcome news for drivers who are gearing up to hit the road for Memorial Day weekend.

The average price for a gallon of unleaded gas sits at about $2.89 a gallon. That's about 27% higher than last year, but about 1.4% below the 2010 peak of about $2.93 a gallon set on May 6, according to motorist group AAA.

With just two weeks to go until the official start of the summer driving season in the United States, prices could continue to ease, which analysts call an abnormality.

"It's a bit of an oddity that gas prices are trending downward ahead of the official driving season," said James Cordier, president of Liberty Trading Group.

The reason for this reprieve at the pump, analysts say, is a stubbornly high level of oil inventory, which has helped to drive down crude prices, making gasoline cheaper for refiners to produce and thus, cheaper for consumers. Worries about the strength of the global economic recovery, fueled by Europe's debt woes, have also pushed down crude prices in recent weeks.

The Energy Information Administration said Wednesday that crude inventories had risen for 14 of the last 15 weeks. Crude prices, though up 30% over last year, are now down to $75.30 a barrel, well off highs of about $87 a barrel seen in early April.

Although analysts are expecting average prices to level out at around $3 a gallon, they say gas prices could climb again as inventories fall and speculators return to the oil market.

Cordier says averages gas prices could fall another 10 cents to 15 cents to as low as $2.75 a gallon on average by Memorial Day weekend, before an "inevitable" climb up to $2.95 a gallon by late June.

"Eventually we'll have a draw on inventories and the speculator, who's alive and well, but not today, will be coming back into the market," said Cordier. "Crude is about $14 off its 2010 highs; so, it's looking like a bargain."

Other analysts say gasoline is still cheap relative to other consumer products, giving way to the possibility of a ramp-up in prices.

"We're hesitant to say that RBOB [a measure of the future price of gasoline] has peaked, given how cheap it is relative to other [consumer] expenses," said Hamza Khan, a commodities analyst at The Schork Group.

"We're paying more for our iPods and TVs in relative terms than gas. There is a cushion for retailers to increase gas prices," he said.

Although 10 states including California, Connecticut and New York have already hit the $3 mark -- Hawaii and Alaska are above $3.50 -- analysts have said that the oversupply of crude oil coupled with excess capacity at U.S. refineries should keep a cap on prices for the holiday weekend.

"Crude prices seem to have found a home in the $70 to $80 a barrel range; so, gas prices should stay in the general vicinity they're in now," said Dr. Dan Seiver, a finance professor at San Diego State University. "So, enjoy it."  To top of page

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