Gasoline prices heading into Memorial Day — the kickoff of the busy summer driving season — are well below their levels of a year ago, and analysts say they’re unlikely to rise much in coming months.
The main reason is the boom in US production of crude oil, which accounts for about two-thirds of the price of gas. As a result of the controversial drilling process known as “fracking” that frees oil from shale formations, US crude is flooding global markets and holding down prices. Crude has fallen about $2 a barrel since last week, closing in New York Friday at $94.15
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In a recent report, the International Energy Agency said increased US production is creating a supply-side shock that is putting downward pressure on prices and reshaping the global energy industry and outlook.
“The good news is that this is helping to ease a market that was relatively tight for several years,” said Maria van der Hoeven, the agency’s executive director.
That’s also good news for drivers, who in recent years have headed into the long Memorial Day weekend with fears of short gasoline supplies and surging prices. While prices have ticked up slightly in recent weeks, they are still well below last year’s levels.
Lower gas prices are also providing a lift to the economy, putting more money in consumers’ pockets for discretionary spending and offsetting the impact of the recent increase in payroll taxes. Economists attributed last month’s rise in retail sales to lower prices at the pump.
“It’s just a very big positive for the economy” said Chris Lafakis, a senior economist at Moody’s Analytics in West Chester, Pa.
In Massachusetts this week, unleaded regular averaged $3.49 a gallon, up a penny from the previous week, but still 16 cents lower than the same period last year and 16 cents lower than the national average, according to AAA Southern New England.
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Phil Flynn, an oil analyst with the Price Futures Group in Chicago, said he expects gas prices to resume their decline, dropping a few pennies a gallon in the next week or so. Long term, he said, prices have nowhere to go but down as the increasing number of fuel efficient cars on the road curb consumption. “The truth of the matter is that we are starting to see a major drop in gasoline demand,” Flynn said. “In the future we’re going to see more fuel efficiencies, more different types of cars.”
In the meantime, gas prices remain historically high and may convince some people to stay close to home, said Mary Maguire, spokeswoman for AAA Southern New England. The auto association estimates that 34.8 million Americans will journey 50 miles or more from home during the holiday, a decline of about 1 percent from last year, when 35.1 million people traveled.
“Unfortunately, we’re seeing prices trending up in the face of Memorial Day,” Maguire said. “We’re in better shape than we were at this time last year [but] make no mistake, gasoline prices are still high when you look at the historical averages.”
Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.