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Labor Day: Gas prices forcing drivers to scale back holiday travel

Gas prices continue to be a pain point for American travelers ahead of the Labor Day Weekend, sitting at a national average of $3.81 per gallon. AAA Northeast Senior Manager Robert Sinclair Jr. sits down with Yahoo Finance Live to discuss how inflation and gas prices are weathering on families' travel budgets.

"The concession that's being made is the distance that's being traveled," Sinclair Jr. says. "We did a local survey, and drivers told us their average trip is going to be 50 to 200 miles... I remember when it was 500 to 1,000 miles for a trip over a holiday weekend. So, they are cutting back in that regard."

Sinclair Jr. outlines his outlook for gas prices amid OPEC's oil production cuts and the seasonal trends surrounding oil refining and the effects of hurricane season.

Video Transcript

BRAD SMITH: Joining us now with what to expect from the holiday weekend, Robert Sinclair, Jr., AAA Northeast senior manager. Robert, always a pleasure to have you here in studio with us.

ROBERT SINCLAIR: Thank you for having me.

BRAD SMITH: All right, so set the scene for us. Labor Day weekend, what do we expect here?

ROBERT SINCLAIR: It's going to be busy. Gasoline prices are lower than they were last year. But $3.81 per a gallon, That's still in the pain point for a lot of drivers. 40% of drivers told us in a survey in March of 2018 that $3 a gallon was the pain point. They'd have to cut back on driving, not eat out, put off making a major purchase like a big appliance in order to afford gasoline.

But for a holiday, Americans get the fewest number of vacation days of any workers in the industrialized world. We get a freebie, we take advantage of it. I think the concession that's being made is the distance that's being traveled.

We did a local survey, and drivers told us that the average trip is going to be 50 to 200 miles. I've been doing this job a long time. I remember when it was 500 to 1,000 miles for a trip over a holiday weekend. So they are cutting back in that regard.

And I think the scale of activities will be different for those that are going out. And I think also with inflation cutting into the family budget, that's why we're seeing lower demand for gasoline overall. Year to date, this year compared to last, we're 0.9% less demand compared to a year ago when gasoline was so much more expensive.

SEANA SMITH: So what does that tell us then just where prices are headed if we're seeing lower demand? Are we then going to see lower prices?

ROBERT SINCLAIR: Well, the OPEC+ instituted production cuts of 3.6 million barrels per day out of the 100 million per day that we're being produced, particularly Saudi Arabia and Russia. That started in July. And toward the end of the beginning-- middle or till the end of the month, we saw prices tick up. And that is going to remain the same.

They're talking about continuing those production cuts into September, which starts tomorrow. So I think that's going to be one factor keeping prices higher. The factor that might keep them lower is the fact that we're at the end of the summer driving season after Labor Day. The kids are back in school and so there's a lot less demand.

But also, we make the switch from summer blends to winter blends of gasoline effective September 15. Summer gasoline is much more expensive to refine and distribute. There are different blends used in different parts of the country. And you cannot share them. Different blends are used because of weather conditions.

We use lower vapor pressure gasoline during the summer so you don't get the evaporative emissions because of the hot weather. And also, during the winter carbon monoxide is a bigger problem rather than volatile organic compounds like we see during the summer. So winter gas is very different from summer gas. You leave summer gas in your car in the middle of winter, try and start it, it probably won't run.

That's how radically different the blends are. But they're much more expensive during the summer, so we might see a break. The problem is we're still vulnerable to hurricanes. A major hurricane hitting the Gulf Coast-- the oil-rich infrastructure of the Gulf Coast, which has about 45% of the drilling, refining, and distribution infrastructure-- could send prices skyrocketing overnight.

BRAD SMITH: What type of economic impact are we anticipating from this hurricane season?

ROBERT SINCLAIR: Probably not much. It did not do a lot of damage. It closed a lot of ports. And that particularly affects Florida. Florida gets 100% of their gasoline via maritime delivery-- barges or tankers.

The only pipeline in Florida is from Tampa, the Port of Tampa, to Orlando. Now, there are other pipelines, particularly the Colonial Pipeline-- the biggest pipeline in the country, which runs from the Gulf Coast up the Eastern Seaboard with tributaries coming off it-- to feed of the most major cities up and down the Eastern Seaboard. That is susceptible to power outages. The pipeline will go down due to power outages.

You might remember a couple of years ago, it was hacked. And that created a lot of problems. So it really remains to be seen what the effects of the hurricane will be going forward.

I think so far, it's minimal. A lot of ports in Florida were closed as a result of the hurricane. And that would affect those deliveries. But it went through very quickly. We have to see what happens in North and South Carolina.