High Gas Prices Forcing You to Drive Less?

Over the span of the past 18 months, the national average price of gasoline has jumped from a low of $2.13 per gallon (February 2007) to a high of $4.12 (July 2008), back down to today’s current price of $3.69.

While the price decline over the past two months has come as a relief, the 75% price increase between early 2007 and now is clearly unprecedented and has to have made a profound impact on many of our personal finances.

And since money doesn’t grow on trees – especially in this slumping economy – chances are you’ve had to cut back somewhere in order to account for having less money in your pocket. According to a recent poll on GasBuddy.com, nearly 70% of us have reduced the amount of driving we do in order to cope with higher gasoline prices.

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Drivers Using Less Gasoline, Yet Inventories Fell. Huh?

The price of crude oil climbed slightly higher today – up 45 cents to end the trading day at $114.98 – based largely on a U.S. government report which showed a larger than expected weekly drop in gasoline stockpiles.

According to an article published on CNNMoney.com, gasoline inventories fell by over 6.2 million barrels last week, putting the inventory level below what is average for this time of year. This data, in and of itself, wouldn’t usually pique my interest, and would be a sufficient reason to see the price of oil jump slightly.

However, in reading the CNNMoney article a little more closely, this inventory drop didn’t seem to make much sense. According to the same inventories report:

“Consumers are still driving less than they did at this time last year. Over the last four weeks, gasoline demand has averaged about 9.5 million barrels per day, which is 1.6% lower than the same period last year.”

OK, that certainly seems to be conflicting data coming out of the same report. On one hand you’ve got data showing increased gasoline consumption – i.e. falling inventories – but on the other hand you’ve got data showing continued decreased demand for gasoline.

Granted, I realize the decrease in gasoline inventories was measured over the prior week, while the gasoline demand was measured over previous four weeks. That being said, the gasoline inventory drop – which was more than double what economists were expecting – seems a bit odd considering demand for gasoline has been falling the past four weeks.

Am I the only one that doesn’t get this? Let me know your thoughts.

Gas Prices Fall for 25th Consecutive Day, Now Only $3.81

Falling demand and a significant decrease in the price of crude oil has helped to push the price of a gallon of regular gasoline to $3.81 – its lowest level in nearly two months.

Just one month ago, the price of gas was just sort of its record high, selling at an average price of $4.10 per gallon. While the recent month-long decrease in the price of gas is certainly a very welcome sight, it should be noted that today’s current price is still 38% above the $2.77 we were paying at this point last year.

Currently, there are nine states reporting an average gas price above $4 per gallon, with Hawaii having the highest average price at $4.58 per gallon. Missouri is reporting the lowest state-wide average price, coming in at $3.52. Oklahoma has the second lowest price at $3.56 per gallon.

Remember the first time the price of gasoline was around $3.75 a gallon? Many of us thought we were going to have to drastically cut back our driving, prepare ourselves for $5 or higher gas, and face some pretty dire financial predicaments. It’s a wonder there wasn’t mass rioting in the streets.

Fast forward just six weeks and all of a sudden, $3.81 gas isn’t so bad. In fact, it feels like an absolute relief from the $4.12 we were paying just a three weeks ago.

It’s amazing how good a simple seven percent drop in the price of a modern-day necessity can feel!

However, if Americans continue to drive less, purchase vehicles with better fuel economy and oil prices continue to fall – due to a global economic slow down and continued strengthening of the dollar (hopefully) – this recent price drop might turn into something a little more significant.

Unfortunately, I’m not holding my breath and I believe that gas prices won’t fall but 10% from current levels before the end of the year.

$4 Gas – A Look Back

Now that the average price for a gallon of regular unleaded gasoline has finally hit the $4 mark, I figured it would be a good time to reflect on how far our perspective regarding gas prices has changed over the last year or so.

On May 30 of last year, I asked Daily Fuel Economy Tip readers to predict where they thought gas prices would be in one year. Just less than half of the respondents – 49% to be exact – said that gas prices would be at or above $4 a gallon. The remaining 51% predicted prices would be less than $4 a gallon. At the time of the poll, the national average gas price was roughly $3.10 per gallon.

Then in late December of last year, again, I asked if Daily Fuel Economy Tip readers expected gas prices to climb above $4 per gallon during 2008. Not surprisingly, this time, the percentage of respondents expecting $4 gas climbed. In fact, 71% of respondents said they expected $4 gas, and an additional 11% stated they were unsure if gas prices would break the $4 mark. At the time of that poll, the national average gas price was roughly $3 a gallon.

Finally, in early March of this year, as the price of gas was on the verge of shattering its all-time high, I again asked Daily Fuel Economy Tip readers how certain they were that 2008 would see $4 gas. The results were very much in line with the December poll with 51% of respondents saying they were 100% certain of $4 gas, while an additional 31% of respondents said $4 gas was likely. At the time of this poll, the national average price was roughly $3.20 per gallon.

So, here we are now, a week into June 2008 and we’ve finally crossed the $4 mark and “validated” the beliefs of those of us who saw this coming nearly a year ago.

Inevitably, the question will now turn to “when do you expect to see $5 gasoline?” Unfortunately, it’ll probably happen a lot sooner than any of us expect or would like.

$5 Gas – A Reality For Alaska

Today was quite a day for oil and gasoline prices. And from the looks of it, the worst may just be beginning.

A barrel of crude oil climbed a record $10.75 to close the trading session at a record high of $138.54. Are you beginning to sense a trend with the records?

Today’s jump was caused by two main factors: 1) the dollar falling sharply against most major currencies, specifically the Euro; and 2) the release of a forecast by a Morgan Stanley analyst which predicts crude oil will be trading at $150 a barrel by July 4.

This of course helped to push gasoline prices ever closer to the $4 mark. According to GasBuddy.com, the national average price of a gallon of regular unleaded gasoline is now up to $3.99. At this point, it appears the average American motorist will be paying over $4 a gallon come Monday morning’s commute.

Thirteen states and Washington, D.C. are now reporting average prices above $4 per gallon. Missouri currently has the lowest state-wide average price at nearly $3.75 per gallon.

And for the final kick in the pants? Today, America had its first state reporting a state-wide average price of over $5 a gallon.

As of late this afternoon, GasBuddy.com was showing the average price of gasoline in Alaska as $5.09 per gallon. While the price has since dropped to a more “reasonable” $4.83, it’s still pretty telling that enough people were reporting prices in excess of $5 that the average price ended up that high in the first place.

But, if you think this is bad, just wait until the International Energy Agency, a widely respected and independent source of energy information, releases a forecast showing global demand has outstripped global supplies. If (when?) that happens, today’s price increase will look pretty tiny.

It’s Time to Raise the Federal Fuel Tax

Over the last several months, there has been a lot of talk regarding what the Federal government should do to help ease the sting of high gas prices.

The discussions have ranged from creating a gas tax “holiday” where the federal fuel tax would be suspended during the busy summer travel months, to cutting oil shipments to strategic oil reserves – which actually was recently implemented.

While much of the dialogue has revolved around helping to ease the short term pain caused by rising gas prices, most of the “solutions” that have been kicked around Capitol Hill don’t help to solve the long term problems created by the ever persistent energy – specifically, oil and gasoline – crisis.

So, instead of just chastising our legislators and their inability to deliver a viable solution to our current problems, I’ve come up with a simple plan that will cause only minimal short term pain, but in the end will help to create a long term solution:

  1. Raise the federal fuel tax from 18.4 cents per gallon to 50 cents per gallon.
  2. Impose a $2,500 sales tax on all vehicles sold that do not average at least 28 mpg.

Based on a price of roughly $4 per gallon, the current federal fuel tax accounts for 4.6 percent of the total price of a gallon of fuel. By raising the federal fuel tax to just 50 cents per gallon, the tax would still only account for 11.4 percent of the total price of a gallon of gasoline.

That’s still well under what most citizens of Western European countries pay, who, in some cases face nearly 20 percent fuel taxes. These high fuel taxes are a large reason why fuel consumption has either flat-lined or decreased in most European nations over the past two decades.

Now, I’ll be the first to admit, I’d rather keep my own money than hand it over as tax revenue. I’m sure you’re the same way. However, that’s the point of the matter. It’ll hurt to lose that money. Therefore, I’m willing to bet you’ll probably find ways to drive less.

That means the tax is doing its job!

In addition to helping us curb our fuel usage, the increased fuel tax would be a tremendous revenue boost for the Federal government. Americans currently consume just under 400 million gallons of gasoline each day, so by increasing the federal fuel tax 31.6 cents per gallon, the government would raise an extra $50 billion per year.

Just think what could be done with that extra $50 billion in tax revenue. What if half of that was explicitly earmarked for alternative and sustainable fuel/energy research? It seems to me that we’d find a solution to the problem a lot faster than our current snail’s pace.

The remainder of the tax revenue could then be earmarked for improving public transportation – like expanding and better subsidizing local subway (urban) and bus systems (both urban and non-urban).

This is a fair tax because it is essentially a pay as you use tax; the more fuel you use the more taxes you pay.

Along the same lines, the $2,500 tax for vehicles designated as “gas guzzlers” would also be a fair tax (after all, you choose what you drive), despite the fact that it’s in essence a double-whammy. First, you pay the tax for simply purchasing the fuel inefficient vehicle, and then over the vehicle’s lifetime you pay more in fuel consumption taxes simply because you’re probably going to be using more fuel.

To make the gas guzzler tax a little more fair, it would be implemented in some sort of step process. That way, if your car comes close to meeting the 28 mpg standard – let’s say you buy a car that averages 25 mpg – you’re not penalized the same as someone who buys a vehicle that gets single digit fuel economy.

Again, I know nobody likes to hear the phrase “raising taxes” but in the end, I believe this will be the cure for what ails us. As we adapt to the higher prices we will make the necessary changes required of us to become more energy efficient. We’ll drive less, buy cars with better fuel economy. And, the byproduct of our short-term pain at the pump will be improved public transportation and alternative, sustainable and cleaner sources of energy.

I think we can all live with that.

It’s The Commute, Stupid

You’ll have to forgive me for the rather abrupt title, which is a ripoff of a James Carville inspired slogan for the 1992 Clinton presidental campaign, but I need it to make a point.

The point being: you can blame $4 gas on your morning and evening commute.

America has been built on the notion that personal transportation would always be relatively cheap. The most obvious example of this has been manifested in the exponential growth of suburbs and exurbs during the last two decades.

As we were pushed farther away from cities and their immediate suburbs – which, coincidentally, are where a vast majority of Americans work – and climbed into our cars – in many cases, a gas guzzling sedan, truck or SUV, and almost always by ourselves – we started to put into motion the scenario that’s playing out right now.

Invariably, the more we drove, the more fuel we consumed. Because oil is a finite commodity, the more we demanded, the more we tapped into the world’s ever decreasing supply.

In order to get a better idea of how far the average American commutes to and from work, I recently added a poll to Daily Fuel Economy Tip which asked the following: “How far is your commute (round trip) to and from work?” Here’s how nearly 200 people responded:

  • 29% have a commute that is longer than 31 miles
  • 28% have a commute that is between 11 and 20 miles
  • 25% have a commute that is less than 10 miles
  • 18% have a commute that is between 21 and 30 miles

If you were to assume that the average commuter vehicle on the road gets about 21 miles per gallon – which isn’t a stretch considering all of the trucks, mini-vans and SUVs on the road – then nearly half of Americans burn more than a gallon of gas per day just to get to and from work.

While that may not sound like much, over the course of a year, that’s over 18 billion gallons of gasoline, assuming a total workforce of 150 million individuals.

Back when oil was $25 a barrel and gas was $1.25, it didn’t really matter what type of gas mileage our vehicle got or how far we drove to and from work because at the end of the day, it wasn’t going to cost much to fill up. In fact, it cost so little to fill up that even driving a gas guzzling Suburban was probably just as cheap as using public transportation, not to mention the fact that it was much more convenient.

Unfortunately, it appears that this perpetuated even more driving, which continued to push up demand on what has become an increasingly limited supply.

Don’t forget, as our demand continued to grow relatively unchecked, our friends in developing nations such as China and India began to consume more oil, thanks in large part to growing middle classes that could now afford automobiles.

So here we are now, with oil pushing $135 a barrel, a national average gas price of just under $4 a gallon and a razor thin margin between the world’s supply and demand for oil.

Happy commuting.

Out of Oil? Welcome to the Brave New World.

Unless you’ve been able to avoid the news for the last two years, you’re probably well aware of the fact that the price of crude oil has been on a strong and steady climb.

While there are some economists who claim that the major factors behind the dramatic increase in price are a weak dollar and out of control commodity traders, a vast majority of economists, ecologists and every day people are worried that the real answer is much simpler: we can’t produce enough oil to meet current demand and we’re quickly draining what supplies we have left.

Thanks to the industrialization of the two most populated countries in the world – China and India – the world-wide demand for oil and petroleum based products has soared over the past decade. Unfortunately, since oil is a finite commodity (there’s only so much left in the world, not to mention the fact that there isn’t much, if any, excess refining capacity) this increased demand has done two distinct things:

  1. Driven the price of oil up nearly 75% in the last year alone
  2. Drastically reduced the amount of the world’s remaining supply of oil

While I’m sure there are plenty of very educated people out there who have a pretty good idea how much oil is left, it seems that considering the wide range of time frames being given, it seems that even most people “in the know” are just guessing. So, I figured why not give Daily Fuel Economy Tip readers a chance to guess as well?!?

About a week ago I put up a poll which asked: “When do you think the world will run out of oil?” Well over 200 people responded, and this is what they had to say:

  • 38% said we will run out of oil in more than 100 years
  • 23% said we will run out of oil in less than 25 years
  • 18% said we will run out of oil in 26 to 50 years
  • 13% said we will run out of oil in 51 to 75 years
  • 8% said we will run out of oil in 76 to 100 years

It certainly seems like there’s a pretty good split between those who think we have some time (38% for 100 + years) and those of us who think time is running out (41% for less than 50 years). It seems us common folk can do about as good of a job predicting future oil supplies as the so called “experts.”

Unfortunately, since most of the world’s expansion over the last 50 years can be directly attributed to cheap energy (specifically cheap oil) it really does feel as if we are on the cusp of a Brave New World. Will we experience hyper-inflation on everything from fuel to food? Will things like transcontinental flights be a thing of the past? Will we begin to see a gradual decrease in the world’s population?

I know that many of these questions seem rather absurd, especially when they’re looked at in the context of “the here and now.” However, when taking the long-term view, it’s actually very easy to see the world coming to a grinding halt thanks to a significant decline in the availability of oil. The reason being, less oil will have an enormous trickle-down effect.

Just look at the following examples of what could happen due to higher oil prices:

  • Obviously, the price of most forms of energy will go through the roof. The price of all transportation fuels will skyrocket. In order to help combat these increased costs, people will become more urbanized and things like the suburbs will become a thing of the past.
  • High transportation costs will cause a dramatic trickle-down effect on consumer prices as manufacturers have no choice to pass on the costs to their customers. No consumer product will be safe.
  • Any petroleum based product (plastic anyone?) will undergo significant price increases. Do yourself a favor and try and pick out even one item near you that neither contains plastic nor was produced by anything containing plastic.
  • As oil prices increase, there will be greater emphasis placed on bringing alternative fuels to the market. Right now, it appears our main efforts are being focused on ethanol. As farmers focus more of their efforts on producing ethanol producing plants, the price of these plants, as well as the prices of every other fruit/vegetable/dairy/poultry/beef/pork product will climb exponentially higher.

These likely scenarios just scratch the surface, and don’t even begin to speak to the increased conflict over the world’s remaining oil supplies.

But, so I don’t end this post on such a gloom and doom note, it does appear that there is reason to be thankful for the recent run of gasoline and oil prices, as there now appears to be much more focus on finding cheap, clean and sustainable alternative fuel sources. As these fuels/energies become more mainstream, hopefully they will reduce our demand for oil to the point that we don’t even care how much petroleum is left in the earth.

Gas Prices Hit All-Time Record High

Gas prices hit an all-time high of $3.25 today, breaking the previous record of $3.24 set in May of last summer. To help put this in some perspective, exactly one year ago the national average gas price was $2.56. For you non-math people out there, that constitutes a jump of over 25 percent.

In addition to the nation-wide record, every state is now reporting state-wide average gas prices above $3 per gallon. New Jersey has the lowest average price at $3.01 per gallon, while Hawaii has the highest average price at $3.68 per gallon.

Unfortunately, it doesn’t appear as if things are going to get much better any time soon. The price of oil, which is a major factor in how much we pay at the pump, has skyrocketed over the last several months and shows no signs of stopping any time soon. In fact, Goldman Sachs is now warning of $200 oil.

Additionally, we’re right around the time of year where refineries will switch over to “summer blend” gasoline, which is more expensive than regular gas. Summer blend gasoline (something that has essentially become Federally mandated) contains special (read: more expensive) additives that help reduce emissions and decrease smog.

Unfortunately, as I’ve said on several occasions, this couldn’t be coming at a worse time for most Americans. The housing market, which is the single greatest source of wealth for Americans, is in the midst of a prolonged down cycle, which isn’t likely to end until next year at the earliest. Consumer confidence is plunging, the dollar is tanking, jobs are becoming less abundant, food is becoming more expensive… I think you get the point.

As long as the current economic trends continue – which is very likely considering most signs are pointing to things getting much worse – gasoline prices above $3 a gallon are really going to hurt American consumers. If gas hits $4 this summer, look out below!

Hopefully higher gas prices will encourage us to do a better job conserving fuel and force us to navigate towards more environmentally friendly vehicles and energy sources. While these may be the only bright spots in paying more money for gasoline, in the end today’s pain may be worth it if it truly is the catalyst that helps us get our act together.

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