US Gas Prices Plunge In Time For Independence Day Travel

This year is starting to look horribly like 2011, when initial high hopes the recovery would kick into high gear were subsequently dashed. This year a drumbeat of bad news from overseas has been followed by paltry U.S. job growth. Yet, there's a silver lining to the bearish global economic news -- a slide in crude oil prices. As a result, gasoline prices fell from an April peak, prompting more Americans to plan to hit the road for Independence Day.

Travel and leisure group AAA projects 42.3 million Americans will journey 50 miles or more from home during the Independence Day holiday weekend, a 4.9 percent increase over the 40.3 million people who traveled last year. The figure matches the high of the past decade, set in 2007 and is 42 percent above the recession-hit 2009 level.

A healthy travel industry is critical to the overall well-being of our economy and consistent increases in travel are encouraging, said Bill Sutherland, vice president of AAA Travel Services.

A projected 35.5 million auto travelers will hit the roads over the July 4 -- July8 Independence Day holiday period, or 84 percent of all holiday travelers. This is a 4 percent increase over the 34.1 million people who traveled by auto last year, AAA said.

The number of air travelers during the holiday period will rise by more than 9 percent from a year earlier, to 3.2 million, the most since 2004. This category hit a decade low of 1.4 million in 2009.

Airfares are flat compared with a year ago with an average lowest round-trip rate of $200 for the top 40 U.S. air routes in both 2011 and 2012. Air travelers will make up 8 percent of all holiday travelers while the remaining 8 percent of travelers will use rail, bus and cruise ship.

Lower gasoline prices are playing a part in spurring holiday travel plans. Retail regular gasoline averages $3.50 a gallon nationwide, down 44 cents from the seasonal peak in April and 16 cents below a year earlier.

Investors have been flocking to the safe-haven U.S. dollar from the escalating euro zone debt crisis. Since oil is priced in dollars, a strengthening dollar has been slicing into oil prices. Crude oil prices have fallen more than $20 per barrel since the beginning of May. Meanwhile, lower global demand is also contributing to the easing of the pain at the pump.

West Texas Intermediate (WTI) crude oil spot prices averaged more than $100 per barrel over the first 4 months of 2012. The WTI spot price then fell from $106 per barrel on May 1 to $83 per barrel on June 1.

As a general rule-of-thumb, a $1 per barrel decline in crude oil prices results in a decline in gas prices of about 2.5 cents per gallon. However, these lower gas prices at the pump usually lag cheaper crude prices by a week or two, as the less-expensive crude oil makes its way through the supply chain to consumers.

The good news is those factors aren't changing anytime soon, which could pull some pressure off the troubled economic recovery.

IHS Global Insight expects oil prices paid by U.S. refiners will average $88 a barrel in the second half of 2012, instead of $114. That translates into almost 60 cents per gallon off gasoline prices, saving around 0.5 percent of disposable income for U.S. consumers.

The U.S. Energy Information Administration forecasts the average price of a gallon of gas should remain at or near $3.60 per gallon for the rest of the summer and average $3.56 through this year and $3.51 in 2013.

Even though cheaper gas prices are taking a smaller bite out of consumers' disposable income, stagnant job and wage growth have taken a toll on consumer sentiment, prompting travelers to tighten their purse strings. AAA forecasts the median Independence Day period spending to be $749, or 7 percent less than a year ago.