Rising gasoline prices hit most consumers right in the wallet. The high cost of filling up has become a topic of concern for motorists around the world. While drivers in the United States are unhappy with gasoline prices, the cost for fuel in Europe, United Kingdom and Canada is even higher, largely due to heavy governmental taxation designed to discourage consumption.
Increased global demand, shrinking supplies, limited refining capacity, the lack of investment in new refineries and regional instability in many of world's major oil producing nations have led to significant pain at the pump; it's likely to get worse in the future. Let's take a look at how we got here, the factors driving the cost increases and strategies to help minimize the seemingly unavoidable cost of fueling up.
The Price at the Pump
According to the U.S. Energy Information Administration, in the United States the average cost of a gallon of regular unleaded gasoline (3.78 liters) rose from roughly $0.61 when it first came on the market in 1976 to more than $3 per gallon in 2011 (Efforts to remove lead from paint and gasoline were a significant legislative focus in the early 1970s due to the detrimental health effects of lead exposure). While there have been isolated periods of time in which gas prices declined and unusual spikes caused by geopolitical tension or natural disasters, the long-term trend has been steadily upward, as shown below.
| Higher Prices for
|Source: Energy Information Administration/price per gallon|
Rising gas prices put a spotlight on the cost oil, a commodity that all the experts expect will continue to get more expensive as time passes.
|Higher Prices for Oil|
|Source: Inflationdata.com/price per barrel|
Price increases have been driven by a variety of factors, including:
Limited oil-drilling capacity
Limited supply of the light, sweet crude favored by refiners
Increased worldwide demand
Limited refining capacity
- Speculation by investors
Price pressure on oil and oil-based products come from two directions. On the supply side, the challenges associated with finding and accessing new source of oil, cost-effectively obtaining oil from existing sources and bringing that oil to market are significant. On the demand side, burgeoning economies in China, India and other emerging markets are creating a sustained increase in the demand for oil. To feed that demand, the Chinese are making aggressive investments in efforts to ensure that they will have access to oil in the future. Their efforts make it more challenging and expensive for other nations to address domestic needs. It is a classic case of supply and demand.
Rising costs have also attracted the attention of investors. Speculation in the commodity futures market has been responsible for driving up the cost of oil by 40% according to an article published by CNN. In the article citing sources as varied as the CEO of Exxon-Mobil, the general counsel of Delta Airlines, a commissioner of the Commodity Futures Trading Commission, experts at Goldman Sachs and representatives of Saudi Arabia's oil interests, CNN reported that Wall Street speculators control nearly 80% of the oil futures market. This isn't corn farmers using the commodities market to help them keep their farms operating, its big investors looking to drive up the price of oil in order to make a profit at the expense of drivers.
Solutions for Consumers
With the oil industry and oil speculators looking to profit, and global governments actively seeking to increase access for oil hungry nations, there are some significant forces aimed at consumer's wallets.
From the consumer's perspective, there are a variety of strategies to reduce the amount of money spent at the gas pump. As difficult as it may to be to envision for suburbanites, many city dwellers have managed to wean themselves off of gasoline almost entirely by walking, biking and using public transit. For those occasions when a car is absolutely necessary, rental agencies and shared cars provided through services such as Zipcar keep automobile related expenses to a minimum. If you've ever considered city living, the chance to leave you car behind might be one more reason to make the move.
If you have to have a car, and public transit isn't a viable option for your situation, there are still steps you can take to minimize the cost of fuel. The big one that comes to mind first for many people is buying a new car.
If you are looking get the highest number of miles per gallon, the purchase of a hybrid vehicle will help you get there. Gas/electric hybrids, such as the Honda Fit, Ford Focus and Nissan Leaf, get somewhere in the range of 100 miles per gallon for an estimated yearly fuel cost of about $500, according to the Environmental Protection Agency .
On the downside, these electric hybrids, are significantly more expensive than a comparable subcompact. They may also cost more to repair and insure than their traditional cousins. Another drawback to the hybrids is their limited range, with most going only about 80 miles on a single charge. This makes them a poor choice if you drive long distances.
If a hybrid isn't in your budget, perhaps you can take a cue from Europe. The cities over there are packed with tiny cars, scooters and motorcycles. If you are ready to trade in your super-sized sport utility vehicle for something smaller, here are ten gas sippers to consider. All these vehicles get around 40 miles per gallon on the highway according to digitaltrends.com. However, this list is not exhaustive. With a little research it is likely that you can find the right car for your financial situation.
- Ford Fiesta
- Nissan Versa
- Hyundai Accent
- Hyundai Veloster
- Chevrolet Cruze Eco
- Chevrolet Sonic
- Hyundai Elantra
- Honda Civic
- Scion iQ
- Kia Rio
In the future, these numbers will get even better because the U.S. government recently issued new fuel efficiency standards that will double the average gas mileage of new cars and trucks by 2025. The new standard will require that vehicles get an average of 54.5 miles per gallon.
If you can't wait that long and want even more fuel-efficient wheels right now, consider a motorcycle or moped. Mopeds may not be the flashiest vehicles on the road, but they sure are easy on the wallet at the gas pump.
The Little Things Add up
If a new car of any sort just isn't in your budget, there are a number of steps you can take to reduce the amount of gas you put into the car you currently own, including making sure your vehicle is ready for the road. Start by keeping track of your gas mileage. If it suddenly fluctuates, your car may need servicing. In the service arena, it pays to do the recommended maintenance to keep your car tuned and the tires properly inflated, as a well-maintained vehicle operates with higher fuel efficiency. It also pays to read your owner's manual. Filling your car with a higher octane gasoline than that recommended by the manufacturer is just a waste of money.
Good driving habits can help you save money too. In vehicle tests conducted by Edmunds.com, using cruise control was identified as an easy way to save gas, as was proper stopping and acceleration. Instead of racing up to stop signs and red lights, jamming on the brakes and then accelerating quickly when it is your turn to go, back off of the gas as you approach the stopping point and accelerate gradually when you pull out. Turning off the air conditioning helps as well, but not much. Also, watch your speed, as excessive speeding will also consume more fuel.
Before you pull into your favorite gas station and start pumping, pay attention to the prices offered by nearby competitors. Cross the street to save that nickel per gallon when the price is lower. And speaking of lower, take excess baggage out of your vehicle to lower its weight. You are paying for every pound you carry. Finally, talk to your employer about a flexible work schedule. Driving at off-peak times can cut down on the amount of time you spend in traffic and the amount of money wasted at the gas station.
Taking advantage of loyalty programs sponsored by some grocery stores another way to save a few dollars. The programs provide a discount on gas prices based on the amount groceries purchased.
Planning your gas purchases can help a little bit, too. According to Time magazine's Moneyland website, Wednesday morning before 10 a.m. is statistically likely to be the lowest gas prices of the week. Holiday weekends are likely to be the worst.
The Bottom Line
Although the price of gas may be out of your control, the choices you make will determine how much you spend. With this in mind, regardless of what you are driving, the best way to minimize the impact of high gas prices on your household budget and reduce the financial stress that can result from rising prices at the pump is to reduce the amount of time you spend behind the wheel. Consolidate your trips; don't pick up the dry-cleaning until you also need milk and gas, and then do everything in the same outing. Keep your tires properly inflated, your car well maintained and an eye on your budget to see if you can reduce other expenses and reallocate the savings to cover the cost of gas.