As Memorial Day weekend approaches, drivers in the Peoria area and all across Illinois are paying more than ever for a gallon of gas.
Gas Buddy fuel expert Patrick De Haan says Peoria ended last week with a record-high average of $4.87 for a gallon of regular unleaded. That marked an increase of about 14 cents over one week.
WCBU reporter Joe Deacon talks with De Haan about what drivers should expect at the pumps this weekend and throughout the summer. This transcript has been edited for clarity and brevity.
Joe Deacon: With Memorial Day approaching, a time when we typically see gas prices increase, where do you think we could see prices for the holiday weekend?
Patrick De Haan: I think we could continue to see prices inch up. We did see a big drop in the price of oil last week, but things have rebounded here. I do think we could see prices rising a couple of cents potentially here just ahead of the holiday.
Do you think that might cause people to cut down or reconsider travel plans, and how might that affect other businesses that rely on Memorial Day weekend?
De Haan: Well, I don't think the small increase we're expecting between now and Memorial Day is going to hold anyone back. I think people have either made up their decision they're going to hit the road or not. In fact, according to our travel survey we released, 58% of Americans are still hitting the road this summer. That's actually up from last year; 57% planned to hit the road last year, which is surprising that more Americans want to hit the road this summer in light of gas prices that are $1.50 a gallon higher.
But as you note, there's a profound impact. Not only are Americans paying more to fill their tank, but businesses (are) paying more to sell their goods, to get their goods transported to them. Logistics costs are through the roof. The average price for diesel is well above $5 a gallon in the entire country, certainly a rarity for this time of year and it probably won't get much better before anytime soon – and the worry is that it may get worse. In fact, the average price for diesel in Peoria now (is) about $5.39 a gallon.
So the trickle down is going to be felt certainly on the road this holiday if you hit the road. Any impacts, you know, impacting businesses like logistics, transportation, even landscaping, things like delivery services: florists, pizza … It's going to be a hard hit.
It just shows what a ripple effect is caused on the economy with higher gas prices.
De Haan: Yeah, absolutely. The economy is driven by diesel fuel, and with the present diesel fuel, like I said, well over $5 a gallon in every U.S. state, this is yet to be fully felt and realized at grocery stores, hardware stores, just about – you name it. Almost every good that you buy at the retail outlet is delivered by diesel fuel.
What factors are keeping the gas prices so high and continuing to rise, and is there any relief in sight?
De Haan: Well, a lot of what we're seeing is kind of multi-layered. It's the high price of oil, but also, it's the fact that we've lost refining capacity and that supply of gasoline and diesel has plummeted in the last couple of months because of that lack of refining capacity. We've lost about a million barrels a day of refining capacity from where we were three years ago. As demand continues to rebound ahead of the start of the summer driving season, the refineries are just not able to keep up with that insatiable demand.
That is why gasoline prices have kind of disconnected from oil. You may have noticed early on after Russia invaded Ukraine, oil jumped to $135 a barrel (and) gas prices back then had made a big jump. But now there's been a bit of a disconnect: oil prices still kind of holding, but the price of gasoline has made a significant jump over the last two weeks, and that's because declining gasoline inventories due to refinery capacity constraints that we're seeing the jump. And unfortunately, I don't see much really anytime soon,
Much is being made in Illinois about a suspension of the gas tax that's effective July 1. But am I correct in understanding that it's really just postponement of a scheduled gas tax increase and not pausing the current tax?
De Haan: That is my understanding, is that it's not reducing gasoline taxes but it was going to freeze the tax at the 2022 rate, which is still very elevated. Keep in mind Illinois is the only state in the nation aside from the West Coast, that is experiencing an average of $5 a gallon. Other states are certainly there, but Illinois is certainly for the region the most expensive state without a doubt.
In fact, like I said, outside of the West Coast – Illinois is the seventh most expensive state in the nation; New York is about 10 cents a gallon lower than Illinois. So quite a high price already for gasoline and politicians only concentrating on not further taxing fuel instead of reducing already implemented gasoline taxes.
So why is Illinois such an outlier in the Midwest area?
De Haan: A lot of it is simply due to that gasoline tax. Not only that, but areas in Chicago (and) broad areas of northeast Illinois are required to use one of the more stringent blends of summer gasoline. That is primarily the cause. You look at Illinois gasoline tax, it totals about 78 cents a gallon. Indiana for comparison is 68 cents and Wisconsin, just 51 cents a gallon.
So are you concerned that things are going to get worse before they start to get better?
De Haan: I don't think we're going to see things get much better anytime soon. I think prices, we may see a little bit – an inch of relief here and there over the course of the summer. But I really don't see … Given the constraints, not only with oil supply because of Russia but at the nation's refineries, it’s going to be a double whammy this year, and I don't think things will get better until potentially August, when demand starts to decline again.
Are we at least reaching a point where maybe it's a leveling off? Or are we going to continue to see – I mean, could the Peoria area be above $5 at any time soon?
De Haan: Yeah, I mean, it could. We're only 13 cents a gallon away from that mark today. So if there's any disruptions (such as) hurricanes this summer, absolutely that $5 a gallon is a very strong potential. So motorists should expect that eventually, we could see that $5 gallon price, and I don't expect much relief this summer. Like I said, there may be some little relief here and there. Really, the only things on the horizon that could provide meaningful relief are either an economic slowdown, or if Russia exits Ukraine – and even then, even if Russia does leave Ukraine, I think a lot of Western countries and oil companies are not going to be doing business with Russia anytime soon.
When you just say, “an economic slowdown,” could rising gas prices lead to an economic slowdown where people just don't have the money to spend any more?
De Haan: There's a lot of things happening in the economy, so it's tough to parse it out and say gas prices are going to be the tipping point. But mortgage rates are up (and) inflation is up; it's not just going to be the high price of gasoline that tips the nation into recession. It's going to be a combination of many factors.
Do you think a recession is likely at this point?
De Haan: I’m not too much an economist, but I think there are certainly alarm bells. Other analysts who are economists do believe that we are going to experience a slowdown; a slowdown is in the cards guaranteed. Whether the Federal Reserve can balance the rise in inflation rates carefully enough to slow the economy down without triggering a recession, that's going to be very tricky, and I think a recession is absolutely possible.
