Summer Driving Season Opens Up Opportunities For Supply Chain Optimization, Inventory Management

Opportune LLP

Find out why high fuel costs during the summer driving season signal opportunities for supply chain and inventory management optimization.

Summer driving season, and the consequential increased fuel demand, have officially begun. After more than two pandemic years and countless canceled vacations, people are anxious to reinstate their summer travel plans. The question, however, is whether higher prices at the pump will impede those plans.

Historically, seasonal variations have led to higher fuel demand and prices during this time of year. An additional contributing factor to higher summer prices at the pump is the additional cost necessary to manufacture summer spec fuels. Finally, consider current event complexities, including the global supply pressure caused by the pandemic, U.S. refinery closures, and Russia’s invasion of Ukraine, as other contributing factors impacting today’s fuel prices.

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According to the U.S. Energy Information Administration (EIA), fuel consumption is set to increase. The EIA expects U.S. gasoline consumption from April to September to rise almost 1% this year. On a global scale, total demand is projected to climb by 1.3% this year, according to the International Energy Agency (IEA).

In addition, a Yahoo!/Maru Public Opinion survey from early May posed the question of whether high fuel prices would deter Americans’ summer travel plans. Sixty-six percent of respondents said they have made or will make significant changes to their driving patterns if the national average per-gallon fuel price goes much higher than the then-current $4.33/gall average. The remaining respondents (34%) said it would take the average price to rise to $5/gal for them to alter their driving plans.

Now that gasoline prices have surged above $5/gallon, the White House is considering an intervention, weighing the consequences of suspending U.S. gasoline environmental rules and restricting gasoline and diesel exports to tame high prices. To reduce summertime smog, refiners and blenders are required to avoid lower-cost components like butane in summer gasoline. In May, the White House Administration had already lifted the requirement for summer sales of E15, a lower-price, high ethanol gasoline. The new waiver under consideration would expand the current scope and apply to all gasoline grades.

In addition, the House recently passed the Lower Food and Fuel Costs Act, which is expected to alleviate supply risks, lower the cost of food and fuel, and reduce summertime restrictions on E15 gasoline. The solution posed most recently involved placing limits on gasoline and diesel exports, a plea falling just shy of a complete ban on foreign sales of petroleum products. Many unknowns remain, and we can expect decisions to be announced in the coming weeks.

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Whether the White House can remedy a solution for high prices or Americans are forced to choose between canceling their summer plans for yet another year or electing to pay the fuel premiums to salvage their R&R time at the beach will be critical for retailers as they work to optimize their supply network, specifically their supply levels and resupply timing.

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Opportune LLP

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