When you’re accounting for every penny without a lot of room to spare, fluctuating gas prices can throw a wrench in an otherwise beautifully executed budget. And fluctuation coupled with high gas prices can be a financial pain. Believe it or not, gas was once 17 cents per gallon — but those days are long gone. Now, it’s not uncommon to drop over $3 a gallon — or over 17 times as much — at the gas pump.
Gas — and other automobile expenses — are one of our largest monthly expenses, especially if you have a long commute to work. And commutes in America just keep getting longer as gas prices rise. More and more, our money is funneled toward gas. So it’s no surprise that gas prices are one of the baseline economic factors people talk about in their day-to-day conversations.
After all, it can be frustrating when the cost of gas per gallon is about what you expected, and the next day it jumps significantly. Learn why gas prices vary so much, and how to account for this fluctuation in planning your monthly budget or long road trips.
- Why Are Gas Prices Going Up?
- History of High Gas Prices
- Anticipating Gas Price Fluctuations
- How Gas Price Fluctuations Affect the Economy
- How To Save Money When Gas Prices and Taxes Rise
- Understanding How To Prepare For Rising Gas Prices and Taxes Helps You
Why are gas prices rising? To understand how to prepare for rising gas prices, you also need to understand the factors that affect them.
According to the U.S. Energy Information Administration, four main factors determine the retail price of gasoline:
- Crude oil costs — which is considered the primary factor
- Refining costs and profits
- Marketing and distribution
Crude Oil Cost: A Primary Factor
Crude oil costs are often a politically fraught topic. Because crude oil is mostly obtained from a limited group of countries, what is happening with or within those countries often affects the prices of crude oil. For example, if events in global politics reduce the production of crude oil, then demand increases, which causes prices to increase. The Guardian identified a few factors within global politics that have affected the recent rise in crude oil costs:
- President Donald Trump’s decision to exit the nuclear deal with Iran caused Iranian’s crude oil exports to fall
- Oil production cuts by oil cartel OPEC and partners keep demand high
- The political and economic crisis in Venezuela, a big exporter of crude oil, caused the amount of oil production to drop
- Other geopolitical tensions
Taxes on Gas
The first federal gas tax was in 1932. President Herbert Hoover originally created the tax to help pay millions of dollars in federal deficit due to the Great Depression. Federal gas taxes have since been rising.
State gas taxes also exist. Taxes on gas can vary from state to state. This map shows gas tax rates in each state as of July 2018. Pennsylvania has the highest gas tax rate at a whopping 58.7 cents per gallon, whereas the lowest gas tax rate is in Alaska, at 14.6 cents per gallon. These rates don’t include the federal gas tax, which is added to state gas taxes and is currently 18.4 cents a gallon.
State tax rates fluctuate for various reasons. One of the most popular uses for gas taxes is working on repairing roads. The usage feels appropriate since by taxing gas, the people who use the roads the most are essentially contributing to their repair. Plus, the people who use the roads the most — and use the most gas — pay the most toward infrastructure. In Alabama, for example, extra gas taxes were used to improve infrastructure.
Here are the current average gas prices per state for regular grade fuel, according to AAA. Due to price fluctuations over time, please check AAA to see the most recent updates.
|Average Gas Prices in Each State|
|District of Columbia||$2.76|
|Prices accurate as of Aug. 29, 2019|
Counties can also impose gas taxes for extra revenue. Sometimes they use gas taxes to make up for any money they aren’t getting from the state that is needed to improve roads.
The EIA also states that seasonal demand can affect gas prices. In the spring and summer, after being holed up all winter, people emerge from their cocoons to do things like enjoy the outdoors and go on road trips, which means more driving. And if people are using more gas, then demand for fuel goes up. And more demand affects distribution — meaning higher prices.
Much of the historical fluctuations in gas prices have been affected by politics. A look at the historical timeline of gas prices gives some insight into this:
Natural disasters can also affect gas prices. In 2012, Hurricane Issac had a huge impact on the Gulf Coast energy structure. According to the EIA, 93% of the 1,287,275 barrels of crude oil that were being produced daily on the Gulf of Mexico were lost. Natural gas and petroleum were also affected. The loss drove a spike in gas prices that was approximately 20 cents above normal for that time of year.
Another problem that might affect gas prices is distribution, which can be regional as gas prices vary from state to state. In July 2015, gas prices in California exceeded $4 a gallon, which was due to issues with a new refinery problem in the Midwest. Just as manufacturers have production issues with normal consumer goods, refineries can also have issues producing gas, which causes delays. Refineries may also need maintenance, which can slow down gas production. For example, refinery maintenance was the main factor behind a rise in gas prices in April 2014.
Sometimes it’s a combination of all these factors that have a high impact on gas prices. In 2012, according to the EIA, there were reductions in oil refinery productivity in the Northeast, which caused a spike in gas prices. Oilprice.com also cited political tensions with Iran as one of the factors contributing to the high gas prices during this time.
Unfortunately, you have little control over gas prices. There are so many factors affecting gas prices that it’s probably hard for the everyday consumer to put their thumb on when gas prices are going to increase. But there are a few things you can watch out for.
First, pay attention to high-demand gas seasons. If you’re planning a road trip for July, and it’s December, don’t rely on the current gas prices to determine how much you will need to budget for gas. Remember that in the summer the prices will go up by about 35 cents.
Second, watch global politics. If you hear about political turmoil, natural disasters or other factors that can affect the production of crude oil in areas that are big exporters of oil, it might affect gas prices.
You might also want to watch the international relations policies of potential government officials. One of the few ways you can help affect issues like gas prices yourself is to vote for candidates who have policies that you think will cause global political stability — and therefore, have a positive effect on things like lower gas prices. Check your voter’s registration here.
Third, pay attention to local politics. Local governments can tax gas too. If there is an act or bill that will raise gas taxes in your local senate, you can anticipate the possibility of gas prices going up for you. Consider writing to your local government officials to state your lack of support for a gas tax increase. And consider voting for candidates whose views align with yours.
The EIA publishes a short-term energy outlook that discusses the factors affecting crude oil production and provides historical and forecast data related to oil and gas.
You can also check websites that try to anticipate gas prices ahead of time, based on both federal and local price trends, if you’re trying to decide whether to fill up today or tomorrow.
Websites like Oilprice.com also publish news about global events that are likely to affect crude oil prices to help keep you in the know.
There are a few ways that high gas prices affect the economy. According to CNBC, the effects on the economy can be mixed. Lower gas prices can put more money in the hands of the consumer, but higher gas prices put money into the U.S. economy since America does produce oil and gas.
Understanding why gas prices fluctuate can help you anticipate changes in your gas budget. But it doesn’t necessarily help you save any money. Here are some ways to reduce the amount of money you’re spending on gas.
Working remotely is a common option to use less gas. According to a TalentLMS survey, 66% of companies allow remote work, which will not only save gas but also the time needed for a daily commute. You can use those hours to spend more time with your children or get extra work done.
If you absolutely must be in the office, seek out those who live near you and make a deal. You can take turns driving to work to cut commuting expenses in half. You might even be able to find multiple people willing to travel with you. This mutually beneficial arrangement can also allow you to make use of carpool lanes available in many cities, which helps you skip right over traffic — saving you even more time and money.
Multimodal transportation is the term for daily transportation that takes advantage of transportation options other than cars. A multimodal commute may involve biking to the bus stop, taking the bus across town and biking the rest of the way to work. Or it might involve biking some days and driving or walking other days. Multimodal transportation is becoming more popular as a way for cities to address congestion and become more environmentally friendly.
Some cities are getting creative with transportation and offering innovative methods such as renting e-scooters to the public. Exploring other types of transportation might save you some gas money — along with possibly saving you the headache of driving in traffic.
Take Good Care of Your Car
Taking good care of your car preserves its fuel economy, which means your car will use less gas. And things you might not expect can make your car less fuel-efficient. For example, poor tire pressure can negatively affect your fuel economy by up to 3%, according to Exxon. And using higher gears when driving can result in less fuel consumption.
Exxon also recommends using higher-grade motor oils and changing air filters on a regular basis to help with fuel economy. Higher-grade motor oil requires engines to do much less work because it’s thinner. Thicker oils, while more protective of engines, cause car engines to work harder and, in turn, decrease fuel economy. Researchers are working on making motor oil even thinner — and developing engines that will work with them.
Another driving habit that affects fuel consumption is speeding. According to fueleconomy.gov, speeding can lower your gas mileage by 15% to 30% on the highway and by 10% to 40% in the city.
Avoid using your car as a long-term storage solution. Reducing the amount of weight in the vehicle by not storing heavy items in the trunk — or even in the backseat — can make a big difference over time.
Check Out: 26 Cars With the Best Gas Mileage
Fuel Rewards Programs
Some gas stations have fuel rewards programs you can join that offer discounts on gas or other perks. For example, Shell is currently offering 5 cents off per gallon. Also, ask around about local fuel-saving programs that might be available to you.
Some grocery stores offer fuel rewards as well. The Kroger fuel points program currently gives you a fuel point for every dollar you spend at Kroger, which can be redeemed at Kroger gas stations. The Kroger rewards credit card gives you even more fuel points.
Other types of fuel rewards are available, such as credit cards that give you extra cash back on gas — 5% back as opposed to the normal 1% cash back. And the Bank of America Cash Rewards card allows you to get 3% cash back in the area of your choosing, which includes gas as one of the options.
Hopefully, you now have a better understanding of what causes high gas prices and how to anticipate when fuel prices will rise — as well as new strategies in your toolbox that can help you save money on your gas budget. The price of gas will continue to fluctuate, just as the wind will continue to blow and the sun will continue to rise and set. But watching crude oil prices and understanding gas seasons can help you prepare your budget for the future.
Keep reading to find out some of the best ways to save money fast.
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Carly Rae Zent is a writer who covers topics including personal finance.