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Gas prices rise as motorists make Memorial Day plans

Staff Report • May 14, 2018 at 6:30 PM

Gas prices rocketed higher last week in most markets due to reductions in domestic supply and the oil market's response to President Donald Trump's decision to leave the Iran nuclear deal.

Sunday's national average of $2.87 is 53 cents more than this time last year and a 6-cent jump from last week. Tennessee gas prices rose 3 cents during the past week to $2.62 per gallon, the highest daily price since November 2014.

"Gas prices are their highest in years, yet that doesn't seem to be slowing motorists down," Mark Jenkins, AAA spokesman, said in a press release. "The latest round of figures from the EIA shows that gasoline demand is significantly higher than this time last year. A strong economy is helping to fuel motorists along, as we approach the most traveled Memorial Day in more than a dozen years. Those people affected by the higher prices at the pump are likely cutting back on other expenses like shopping and dining out."

Why are gas prices rising?

— Strong domestic gasoline demand has caused reduced supply levels.

— Gas stations are shifting to summer-blend gasoline.

— Oil prices are at four-year highs, raising the price of producing gasoline.

— Global demand is strong.

— Global oil supply is tightening.

— U.S. sanctions against Iran could further tighten the oil market, depending on what restrictions are put on Iranian oil exports.

Local averages

— Kingsport/Bristol: $2.63

— Johnson City: $2.61

Most expensive gas prices in the state

— Jackson ($2.66)

— Morristown ($2.64)

— Nashville ($2.64)

Least expensive gas prices in the state

— Chattanooga ($2.54)

— Clarksville-Hopkinsville ($2.58)

— Cleveland ($2.59)

What about oil?

The oil market jumped last week following Trump's decision to withdraw from the Iran nuclear deal and reimpose economic sanctions. Any oil sanctions would not actually kick in for six months, yet oil prices hit new multi-year highs at the mere idea of one of OPEC's largest oil exporters having to reduce the amount of fuel it brings to market. Iran pumps about four percent of the world's oil and is capable of exporting 2.2-2.7 million barrels per day. The previous round of sanctions cut Iran's output in half; it is unclear how much will be cut this time.

The global oil picture has dramatically changed in the past year. When gas prices were below $2 a gallon, oil was in high supply. In fact, there was too much oil, which caused the market to crash in 2014. Unfortunately for motorists, that glut has been drained by a combination of strong global demand and production cuts from Venezuela and a collection of OPEC and non-OPEC oil producers.

The talk of forcing Iran to reduce the amount of oil they bring to the table pushed oil prices above $70 per barrel for the first time since 2014. On Friday, WTI closed at $70.70 per barrel after rising $2 during the week. An increase of that magnitude normally signals a 5-cent increase at the pump.

To view daily gas price averages, visit GasPrices.AAA.com.

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