Memorial Day Weekend Driving: Volatility and Speculation Affect Family Vacations

Washington, D.C.–(ENEWSPF)–May 26, 2011.  Families across the country are now planning their summer vacations, eager for this weekend’s Memorial Day kickoff of the spring and summer driving season, but on this coming three-day weekend, rising prices at the pump will be hard to miss. Today, the Center for American Progress released “Not Again: The Summer Vacation Gas Price Roller Coaster on the Move Again,” by Christian Weller and “Memorial Day Driving by the Numbers: Speculation Drives Up Pump Prices for Families,” by Daniel J. Weiss, to discuss how energy price volatility affects the American consumer and why the price of regular gasoline is soaring.

In “Not Again,” Christian Weller examines the relationship between various categories of consumer and business spending patterns and energy price volatility. This confusing energy price dynamic makes it difficult for families to budget expenses, estimate commuting costs, and make the informed economic decisions that will impact their households since families cannot really see where prices are heading amid the massive volatility. Some of the consequences include:

  • Consumers will delay purchasing a car after experiencing a period of high gasoline price volatility.
     
  • Families spend less on home improvements and home purchases following a period of high energy price volatility.
     
  • Businesses reduce their investment spending after periods of high energy price volatility.

Though the large price swings for gasoline and other energy prices make it even more difficult for families, businesses, and ultimately the economy to plan for the future, the oil industry profits from periods of high volatility. The profits to assets of the oil industry is significantly higher during times of high energy price volatility, likely because the price spikes underlying increased volatility result in higher retail prices and more consumer spending, without an equal offsetting effect when prices go down again.

Adding insult to injury, a significant portion of the gasoline price increase is due to speculators exploiting fears about the impact of instability in the Persian Gulf on the future price of oil, as discussed in “Memorial Day Driving by the Numbers,” by Daniel J. Weiss. Reliable evidence indicates that speculators prey on these fears by bidding up oil prices, which ultimately hit $114 per barrel a month ago.

Some numbers to keep in mind this holiday weekend include:

  • 792 miles: Average distance Americans will travel this Memorial Day weekend.
  • $23: Additional gasoline expenditure for average Memorial Day trip due to speculation.
     
  • $513: American family’s average savings on summer gasoline expenditures with a 60-plus mpg fuel economy standard compared to today’s vehicles.
  • $50 million: Amount speculators made in an oil price market scam in 2008 according to CFTC charges.
  • $40 billion: Big Oil tax loopholes from 2011 to 2021 that are left intact by H. Con. Res. 34.

To read “Not Again: The Summer Vacation Gas Price Roller Coaster on the Move Again,” click here.

To read “Memorial Day Driving by the Numbers: Speculation Drives Up Pump Prices for Families,” click here.

Source: americanprogress.org