Gas prices are now at the highest price they have been at this time of the year since 2008. On June 2, 2008, national gas prices hit a high of $3.976 a gallon. Three years later, the national average gas price is $3.794 a gallon. In cities like Chicago and Los Angeles, consumers are paying more than $4 per gallon for gas. Analysts attribute the prices to a number of problems, including dependence on oil, political instability, declining oil supply and extreme weather events. (Gas prices are influenced by more than supply and demand. Find out what determines the price you pay at the pump. Check out What Determines Gas Prices?)

6 Ways to Prepare for Rising Gas Prices - $5 Per Gallon Gas Coming Soon?
Top 10 Most Fuel Efficient Cars 2011 - Small & Cheap
Crude Oil Futures Trading 101 - What Are They and Should You Invest in Them?

TUTORIAL: Option Spread Strategies

Fortunately, high gas prices are not inevitable. With certain decisions and outcomes, the price of oil can be reduced. Here are some events that would help reduce the cost of oil.

1. Lifestyle Changes
To save money on gas, consumers can spend less time driving. Many people have requested that their employers allow them to work from home. People have also combined trips and have learned to prioritize their trips more. Using public transportation, carpooling, walking or bicycling to work can also reduce the amount of money spent on gas.


2. Improved Efficiency
Creating more fuel-efficient vehicles is one way to spend less on gas. Congress has been trying to increase vehicle efficiency standards, with the intent of keeping the demand for gasoline in check.

3. Oil Substitutes
As the demand for oil decreases, gas prices also decrease. Gas prices will go down when consumers find other sources of energy. Hybrid, solar, and hydrogen vehicles reduce consumer dependence on oil.

4. Political Relations
Nations that import oil are at the mercy of Oil Producing and Exporting Countries (OPEC). When importing nations are able to negotiate with OPEC, they are usually able to reduce the cost of importing oil.

5. Taxes Go Down
Taxes play a large role in the cost of gas. In fact, they are the biggest reason that gas prices fluctuate from state to state. If the state or federal governments lowered the tax on gasoline, the price could go down substantially. Unfortunately, this may be impossible in volatile economic situations when governments need more revenue.

6. New Supplies of Oil Are Found
When new oil supplies are located, the cost of oil can decrease significantly. Offshore drilling and finding new oil fields helps nations increase their oil supply and keep oil and gas prices in check. (Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why. See What Determines Oil Prices?)

7. Oil Companies Produce More Gas
Gasoline is only one of the many products that oil companies produce. Some economists have suggested to Congress that they pass laws to increase the amount of gasoline they produce.

8. Natural Disasters Eventually End
Floods, earthquakes, tornadoes and other natural disasters that have struck our world in the past few months have played a large role in the price of gas. Fortunately, these factors don't last forever. As we rebuild our lives, gas prices will eventually return to equilibrium.

The Bottom Line
It is also important to keep in mind what solutions will not help reduce gas prices. Many have suggested that boycotting the gas companies will help reduce gas prices. Unfortunately, this doesn't really work. One problem is that this only shifts the burden from one day to the next. Eventually consumers have to purchase gas again and they may have to pay more during times of increased demand.

High gas prices can be frustrating, but they are not inevitable. Fortunately, there are many factors which can help to get them under control. As consumers, we can change our lifestyles. We can also encourage our lawmakers to enact policies that will help lower the price of gas in the long run. (Loosening labor restrictions has both good and bad effects for a country and its workers. Check out The Economics Of Labor Mobility.)

Related Articles
  1. Stock Analysis

    The 3 Energy Stocks You'll Wish You Bought in 2015

    Learn about the energy sector and the types of companies that operate within the sector. Find out about some of the best-performing energy stocks in 2015.
  2. Chart Advisor

    Traders Step Back to Assess Commodities Damage

    Traders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
  3. Economics

    These 5 Countries Move the Supply of Oil

    Learn which countries are the largest source of change in the global supply of oil. Oil prices crashed in 2014 as supply increased and demand dropped.
  4. Stock Analysis

    Is the Apple Watch a Real Threat to Fitbit?

    Examine the potential for marketplace competition between Fitbit and the Apple Watch in the rapidly growing consumer wearables industry.
  5. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
  6. Economics

    Looking to Invest In Oil? Be Patient

    Learn about the best time to pick a bottom in oil. Oil prices have been destroyed due to excess supply and slowing demand from a slow global economy.
  7. Chart Advisor

    Four ETFs for Trading Falling Crude Oil

    Commodity traders are turning toward oil because the recent move below a key support level is signaling a move lower. We'll look at four ETFs you can use to gain exposure.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Energy

    Explore information about the PowerShares DB Energy Fund ETF, and learn how investors utilize it to obtain exposure to the oil and gas industry.
  9. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily Energy Bear 3x

    Learn about the Direxion Daily Energy Bear 3x (NYSE Arca: ERY) exchange-traded fund (ETF). ERY gains when energy prices drop, with triple the leverage.
  10. Investing News

    Will Arch Coal file for Bankruptcy?

    In the last four years, Arch Coal Inc. (ACI) has been facing headwinds from lower price of coal amid global oversupply. The shares of ACI have lost nearly 99% of their value this year.
RELATED TERMS
  1. Duty Free

    Goods that international travelers can purchase without paying ...
  2. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  3. Unconventional Oil

    A type of petroleum that is produced or obtained through techniques ...
  4. Green collar

    A worker who is employed in an industry in the environmental ...
  5. Fast-Moving Consumer Goods (FMCG)

    These are consumer goods products that sell quickly at relatively ...
  6. Topside

    The upper part of an oil platform—above the water line—that ...
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  3. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
  4. Is the retail sector also affected by seasonal factors?

    Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>
  5. What has the retail sector evolved to its current structure?

    Retail is the catch-all phrase for the sale of final goods to consumers; a retail transaction is considered an "end" and ... Read Full Answer >>
  6. Why is product differentiation important in today's financial climate?

    Product differentiation is essential in today's financial climate. It allows the seller to contrast its own product with ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!