Rumor has it that gas prices will most likely hit a national average of $4 a gallon by this summer and could reach as much as $5 in some areas. The last time prices broke $4 was back in 2008 when the national average peaked at $4.11.
So as Americans begin to wrack their brains for ways to avoid spending all of their available cash at the pump, they may also wonder what’s going on. Is there actually any rhyme or reason to how gas prices are determined?
Why do gas prices rise?
Well, a variety of factors can spark movement in the price of gas in America, and it’s often not a shortage or even something we as Americans did. In fact, it usually doesn’t take much to trigger big fluctuations in prices, as threats and speculation are often to blame.
Earlier this month, oil prices rose when Iran threatened to cut supplies to some European Union countries in retaliation for sanctions put in place by the EU and United States. Then, Iran announced on Monday that it would stop exporting oil to French and British companies, causing a larger spike in prices. U.S. crude oil for April jumped nearly 2% to $105.08 per barrel, and Brent crude, Europe's benchmark, rose about 0.5% to $120.18 per barrel.
Iran exports 2.2 million barrels of oil per day and less than one-fifth of those are sent to Europe. Capital Economics analyst Julian Jessop called Iran’s move "essentially an empty gesture, as the UK and France buy hardly any oil,” which demonstrates how one small move can have big consequences worldwide.
"The supply is tethered so tightly to demand, that if you do lose even a small percentage of supply, it could have a big effect on the price," said Dan Dicker, oil trader and author of “Oil’s Endless Bid.” So when exporters and the world crude-oil market tightens and lowers inventories, prices change, and it’s out of our control.
Gas prices in the U.S. are already up nearly 9% since the start of the year and, according to AAA, the national average price is $3.57 per gallon of unleaded. When you go to fill up, there are a variety of factors that determine the total. So when you pump $70 into your SUV, that price includes things like state and federal taxes, fees for distribution, plus that original cost of crude oil, which is the largest factor in the price of a gallon of gas.
When wholesale gas prices rise significantly in a short period of time, there are often very big differences in the price of a gallon from station to station in most metro areas. So when we as consumers have very little control over prices at home, what can the average American do to take back some control? HLN Money Expert Clark Howard has a few tips.
What you can do to save $$$
First, don’t waste money on premium gas. Even Consumer Reports says that few vehicles actually need it – even if it’s recommended. If premium gas is recommended, it’s usually for horsepower reason; your vehicle will run fine on regular unleaded and you’ll save 20 or 30 cents a gallon.
Second, consider buying gas anywhere other than at the major oil company filling stations. There are so many other low-cost options available now and Americans are increasingly buying more gas from independent convenience store chains, warehouse clubs like Costco, Wal-Mart and major supermarket chains like Kroger. Clark says any of these alternative channels can usually save you 5 to 15 cents a gallon. And by the way, off-brand gas is not dangerous for your car. Gas is gas. So when prices are bouncing up and down, what’s most important is getting the lowest cost you can find.
Another way around emptying your wallet on gas is buying a scooter. Obviously it’s not for everyone, but when gas prices are so unpredictable, a scooter can save you a bundle. Clark actually got his first scooter almost seven years ago. The tank holds 1.25 gallons and costs next to nothing to fill up! Scooters are great for people who can get everywhere on surface streets; since they usually cap out below 50 mph, you don’t want to take one on the highway. Clark says you can often find used models on Craigslist for around $500, so if you get that thing home and decide it’s not for you, you probably won’t lose much money on the re-sale.
Buying a more fuel-efficient car is always another great option. No matter what happens in the future with gas prices, you’ll spend less each time you go to fill up. But remember, gas is just one part of the equation. Make sure you factor in what it truly costs to buy, operate and maintain a vehicle when you decide it’s time for a new one.
Ultimately, there really is no one-size-fits-all rule to follow when it comes to saving at the pump. If you do a little research though, you can relieve at least a little bit of the pressure on your wallet. So shop around! Try using websites like GasBuddy.com and GasPriceWatch.com to help you find the lowest gas prices in your area.
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