Caution: 'Cruel summer' ahead as gas surge continues
On today's episode of the 5 Things podcast:
Caution: 'Cruel summer' ahead. Surging gas and food prices are pointing to a less than ideal summer for most Americans. According to AAA, the national average for a gallon of regular unleaded gas in the United States right now is $4.81. Diesel is currently averaging $5.61 a gallon. As high as this seems, sadly the forecast is only pointing toward higher numbers throughout the summer driving season.
J.P. Morgan is forecasting a national average for a gallon of regular unleaded gas to hit $6.20 by Labor Day. Which means the outlook for a fun summer could be bleak as Americans tighten up their budgets and hunker down to compensate for the high cost of gas and food.
The team at 5 Things sat down with USA TODAY reporter Medora Lee to talk about some of the reasons behind the high gas prices, what could make it worse and if there is an end in sight.
To learn more about Medora click here. To contact Medora email her at MJLee@usatoday.com
To follow James Brown on Twitter, click here.
Hit play on the player above to hear the podcast and follow along with the transcript below. This transcript was automatically generated, and then edited for clarity in its current form. There may be some differences between the audio and the text.
James Brown: Hello, and welcome to 5 Things. I'm James Brown. It's Sunday, June 5th, 2022. On Sundays, we do things a bit differently, focusing on one topic instead of five. And this week is about gas prices and so much else in our lives.
I'm sorry to say it, but all signs point to a, "Cruel summer." That's according to J.P. Morgan's, Natasha Kaneva, who predicts that the national average for a regular unleaded gas could reach six bucks per gallon by Labor Day. That means gas and food prices aren't expected to go down anytime soon. And in case you don't realize it, the two are entangled. Most of us get the majority of our food off a truck that's usually diesel powered. And the price of transportation is factored into the price of food. For more on this, we turn to Medora Lee. She's been covering personal finance for a quarter century, and like me, she's a newbie at USA Today. Medora Lee, welcome to 5 Things.
Medora Lee: Hi, there. Thanks for having me.
James Brown: I want to start by telling you a story. Just tell me what you're thinking. So I was driving home from lunch with a friend about a week ago, and I noticed I was low on gas. It was not low enough for the light on my dashboard to come on, but it was like a quarter tank. So that's the alarm bell like go get gas, right?
Medora Lee: Mm-hmm.
James Brown: There are a bunch of gas stations in my neighborhood. And outside of one, I saw something strange. I saw a line of cars, three cars deep, waiting to get gas that costs 4.79 a gallon. And it's 10 cents less if you use cash. Me being me, I go to the next station. I'm not waiting for these people to go through. I'll go to the next station.
Medora Lee: Right.
James Brown: Around the corner, gas costs 4.89.
Medora Lee: Okay.
James Brown: And across the street, it was 4.93. Eventually I went to the 4.89. It cost me close to 70 bucks to fill up my Altima. These were unthinkable like six months ago.
Medora Lee: Right.
James Brown: What's going on? And from what I'm reading in your reporting, things could get worse?
Medora Lee: Yeah. I was just going to ask you, where do you live? Gas is so cheap. I live in Chicago and we are over, for regular unleaded. And I'm talking Costco gas which is usually the cheapest you can find. It was 5.20 last Friday a gallon. So I'm thinking to myself, 4.79, 4.89, that sounds great.
James Brown: Now I'm horrified.
Medora Lee: Yes. Usually because it's coming your way. So yeah, gas prices are surging. There's no good news on the gas front. I think all of the good news that you've already lived it. So we are just on our way up as what most people think. We have an oil shortage in this world. People are not pumping enough oil, and oil takes up about half the price of a gallon of gas. So as oil prices rise, so do gas prices. And with summer coming on, they call that the summer driving season. People go on vacation. People want to get out. So they drive to the beach or whatever. So there's a lot of demand for something that we don't have a lot of. So people are forecasting. I think J.P. Morgan is forecasting that the national average is going to hit 6.20 by August, September timeframe. And that's the average. So if you live in Chicago like me, I'm thinking I'm going to see seven handle here, because we're already like over 5.20 a gallon.
James Brown: How are you going to handle that?
Medora Lee: That's a good question. I'm going to keep my job for sure. Number one. And maybe we're going to have to cut back a little bit. A lot of people consolidate trips. They think more about being more efficient in their errands and just making one trip out to do everything. Maybe some people at some point will cut back on their vacation road trip. Maybe not go so far. So there're going to be a lot of things, but my kids definitely have to go to camp. That's one thing that is non-negotiable. We have to pay for that or I'll go crazy.
James Brown: How far away is camp?
Medora Lee: Well, we are not going that far this year. Not because my kids didn't want to, but I just wanted them to be a little closer to home so I wouldn't have to battle summer traffic as much. But fortunately for us, it's probably about 10-minute drive away.
James Brown: Okay. That's not too bad in Chicago land. I've been there twice. The traffic can be a bear.
Medora Lee: Yes, I know, especially during the summer because they rip about half the roads. Summer driving comes with summer construction here in Chicago.
James Brown: I want to zoom in on the price because you've written a lot of on inflation as well. And you mentioned summer driving season and typically you're right from my experience, gas prices go up into summer because there's more demand.
Medora Lee: Right.
James Brown: So how much of it is the drilling? How much of it is the just demand? Obviously it's a combination of the two.
Medora Lee: Right.
James Brown: Which one is weighing heavier from your reporting?
Medora Lee: I think that the war between Russia and Ukraine is weighing heavily on the market because Russia is one of the biggest oil producers in the world, top three, and a lot of countries are banning Russian oil. They don't want to buy any of that. So that takes out a huge amount of supply that's available to us. That pushes oil prices higher. And then on the other hand, we have the higher demand from just people driving around and China has been under COVID lockdown now for weeks, but they're starting to ease their restrictions now. And so that's going to create more demand.
It's hard to tell which is which, but I think that the supply has been a really, really big deal. But that's been happening for a while because a lot of boom-bust cycles with the oil industry has made them not want to drill for oil too much. And then this move to green and climate change environment, be more environmental, don't drill so much oil, move electric. Oil and gas companies haven't had really an incentive to drill too much in the past several years, but the real supply shock was Russia, I think.
James Brown: So that's the supply side of it as we know. Let's talk about some of the possible ways we could deal with this. You asked where I'm from. I live in New York state. You co-authored a piece on our gas tax is dropping here at least temporarily. Is that something that's unique to New York? Are there other states considering this? Have you heard any rumblings on that front?
Medora Lee: There are a lot of states that are considering or have enacted a gas tax holiday, but I have some news for you on that too. It's more I think of a political ploy maybe to make people feel better, but honestly, I mean, do you really think that maybe 3 cents a gallon is going to make a huge dent in your budget? I don't know. I mean every little bit helps. That's true, but with gas prices so high, I'm not even sure even politically, if people will their bang for the buck on that one. I think people are just really thinking gas is expensive.
James Brown: I think it's a very good point. I'm thinking of that trip to the gas station I was describing earlier. So 3 cents off, I think it was roughly 14 gallons I think. 14 gallons I think. I don't remember off the top of my head. That's not a ton less, we're still talking over $60 for something that cost me like 30 or 40 not long ago.
Medora Lee: Exactly. So yeah, it's going to be a cruel summer as the J.P. Morgan analyst said. The big question she said now is really how much demand China will take, how much supply when they reopen up everything. And that could really put a big squeeze on things. Right now she's still holding to her $6.20 national average forecast. But if China starts to really ramp up their demand, it could go even higher, I'm sorry to say. I don't have anything that I can think of that'll it make go lower, unless everybody just stops driving.
James Brown: And that's not happening.
Medora Lee: I don't think so. I think Americans love their cars.
James Brown: There really doesn't seem any acute way out. In your research, is there any... Well, let's back up even a little bit further. You've reported in this vein for a long time. Like how accurate are longterm forecasts in general? Can we really tell, other than seasonal hikes and drops, how prices work a year out?
Medora Lee: Well, it gets a little bit tougher to look further, further out. I mean, if gas prices get so high, that demand drops a lot, we could see some sort of stabilization. I think that it was AAA that said when gas prices hit $5, like 60 something percent of the people will start changing their habits. And if it goes much higher than that, like that percentage of people goes up to 75% of people will start changing their habits. And maybe this is the comeback of public transportation finally. I don't know.
I know in Chicago, for example, they're offering $100 a month for unlimited rides on our Metros. So think about how much gas you might use versus that $100 unlimited ride. So maybe people start biking more or getting on public transportation at some point again, and that'll lower demand. And then we'll... I don't know if gas prices will come down a lot, but they'll at least kind of stabilize at an elevated level. But right now we're seeing records almost every day or weekly.
James Brown: That's terrifying.
Medora Lee: It is.
James Brown: On food prices, diesel always costs more than traditional gas. Would a higher diesel price affect the price of food?
Medora Lee: Definitely. I think that if you actually look at the earnings reports from Walmart and Target, those were two earnings reports about a week or so ago, that really shocked people. One of them was that their transportation costs not just gas, but even just the containers that things come in, have risen so fast and so quickly that they haven't even been able to pass on the prices fast enough to consumers. So your stuff at Walmart and Target, I think are going to go up except for the stuff that they have too much inventory of, because consumers have felt the pinch so fast that they are not buying as much of the goods, like furniture items or household items, as they are their everyday items. So they have a little extra inventory there that's going to go on sale.
I also see a tough road ahead for retailers because it's going to be tough for them to know at what point people aren't going to be buying stuff. And then they'll be stuck with all this inventory that no one can probably even afford because they're too busy buying food and gas. I think Walmart had the best one. This will bring it home for you, how much people are spending. I think that one of the Walmart executives said that they have seen people come in and buy half gallons of milk instead of full gallons. That's how tightly squeezed people are getting.
James Brown: Wow.
Medora Lee: Amazing. Right?
James Brown: Yeah. Very much so. Are there any other points that you would like to make or anything that we didn't mention so far that you would like to touch on?
Medora Lee: Well, I'm not really sure when prices are going to come down, but I know that the government is working on it. You're going to see interest rates go up and hopefully that'll squeeze you some more and finally you'll stop buying.
James Brown: That sounds horrible.
Medora Lee: I know, right? It does. Doesn't it? Everything sounds horrible. I hope I did make you want to go crawl into a cave. But here's a bright note. If we go into recession, historically recessions have been much, much shorter than expansionary periods. So that should make you feel a little bit better. It won't last a very, very long time.
James Brown: All right, let's try to end on the bright note. The bright note is things may go into recession, but if they go into recession, we won't be in a recession for very long if it follows the traditional pattern.
Medora Lee: Yeah. Just brace yourselves and then we're going to come out on the other side.
James Brown: That's some optimism for us. Medora Lee, thank you for sharing your insight.
Medora Lee: Thank you for having me. I appreciate it.
James Brown: If you liked the show, write us a review on Apple Podcasts or wherever you're listening. And do me a favor, share it with a friend. What do you think of the show? Let me know @jamesbrowntv on Twitter, or email me at jabrownusatoday.com.
Thanks to Medora Lee for joining me, and Alexis Gustin for her production assistance. Taylor Wilson will be back tomorrow morning with 5 Things you need to know for Monday. For all of us at USA Today, thanks for listening. I'm James Brown and as always, be well.