Patrick DeHaan is a senior petroleum analyst at gasbuddy.com.
With Labor Day fast approaching, motorists are seeing prices perk up at gasoline stations across the nation. Many simply point to the fact that a holiday is approaching for the hike in prices—but what's the real reason? Have gasoline prices risen traditionally before every Labor Day weekend, and what are the true reasons for such timely increases?
Looking back into GasBuddy historical pricing data, we can see that we're currently in an upward trend. Motorists will likely see higher gasoline prices going into Labor Day 2011 thanks to Irene shutting down some refining capacity and other concerns. Looking back, I found that in 2010 prices actually fell leading into the holiday. Labor Day fell last year on September 6. On September 3, U.S. average gasoline prices were $2.70 per gallon, falling slowly every day through the holiday, when prices averaged $2.689. Immediately after Labor Day 2010, prices began climbing. [See a collection of political cartoons on gas prices.]
Digging back to 2009, prices also fell going into the Labor Day weekend. On September 1 prices were $2.602, falling through the holiday, which occurred September 7. Prices on Labor Day 2009 averaged $2.575, and continued falling for three more days after the holiday. We also saw a downward trend going into Labor Day weekend in 2008, saw a rising trend in 2007 during the weekend, and a steeper downward trend in 2006. So looking at the bigger picture, if prices do have an upward trend this Labor Day weekend, it will be the first time since 2007 that the national average rose over the weekend! Many people may be skeptical . (Do we all have short term memories because we're conditioned to believe prices rise every holiday? Quite possibly!)
So if prices had historically fallen over Labor Day weekend, what's going on this year that may be pushing them higher? A few things—most notably—Hurricane Irene. The storm that grazed many East Coast areas resulted in the shut down of several refineries that produce gasoline, causing investors and market players to be concerned that output of gasoline would result in lower supply available. Supply did fall in the Energy Information Administration's most recent weekly report, supporting the thought that they had indeed fallen. [Read: 12 States and Territories with the Most Disaster Declarations in 2011]
The only other recent year we saw prices rising over Labor Day was 2007—so what happened then that triggered higher prices? Simply put—Hurricane Felix. Felix formed as Tropical Depression Six on August 31, and by the next day was upgraded to Hurricane Status. It then rapidly intensified to a monster category 5 storm, which likely meant some controlled chaos in markets as players had to deal with the thought of such a storm making an impact on oil infrastructure. Gasoline prices quickly swung higher as Felix developed, with the national average rising nearly five cents per gallon in just four days. Had Felix not developed, I'd argue that gasoline prices could have fallen over Labor Day.
So let's get one thing straight here: the tradition—at least for the past five years—is that gasoline prices fall over Labor Day. When there are storms or disturbances, which have the real potential to cause large damage to oil infrastructure and gasoline output, then prices rise. Not necessarily because of added holiday demand, but put two and two together. The risk of a large storm resulting in a drop of gasoline production plus added demand from many motorists hitting the road for the holiday weekend? Economics tells us it's likely in such situation to see prices rise.