A detour from personal finance to something more macro:
Isn’t it amazing (sarcasm intended) that the price of a barrel of oil has dropped from $ 72 to $ 59 over the past month, yet “shockingly” – sarcasm intended, again – the price of gasoline hasn’t budged in my area. It seems that the oil companies have no problem raising the price of gas IMMEDIATELY, whenever there is a hiccup in the Middle East, but they FORGET how to lower prices when the price of oil goes down !
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Just revisiting some favorite MMM articles, and I stumbled on this.
This was in 2011, 14 years ago, so gas is even cheaper today than it was then without adjusting for inflation.
And here’s the full article for anyone interested: Mustache on the Move: Gas Prices Still Too Low
Funny article, and so true. And yes, we are spoiled. FYI, I just paid $2.55 in Toledo for a gallon.
It is so hard to keep one’s perspective these days. Costs are going up for many products and services and we all feel a bit adrift as we are generally powerless to do anything about what stuff costs. Somehow though, we have to try to maintain some level of equanimity. Otherwise, we will be outraged all the time.
For all who are outraged at the cost of auto fuel of what ever variety you need, I invite you to calculate your cost of operation of your vehicle on a per mile basis. Be sure to include depreciation, insurance, parking, tolls, and maintenance. For many people, the cost of fuel is a small portion of the total.
I also find it helpful to rank our spending categories in decreasing order of amount spent. With two old cars our cost for getting around is tiny compared to what we pay in taxes, and most everything else.
Personally, I am appalled by the costs for produce and other food items. I mean, c’mon $2.79/lb for Honeycrisp apples is outrageous!!! And what about eggs? I heard this am that the price per dozen is falling down to only $5. Wow, what a bargain……..not.
Same forces that push equity prices higher push food prices higher. I know exactly how you feel about the spending side but we have to accept that as we benefit from the investment side we have costs on the pricing side.
(why I don’t like fixed income so much, I fear inflation more than I fear deflation)
Before I get sidetracked here, I applaud your point about calculating the per mile cost of your vehicle to get an overall picture of your real automobile expenses. Fuel usually is a smaller component of cost compared to insurance, depreciation, and loan costs (if you have a loan). A quick way to give yourself a baseline is to use the mileage deduction rate the government uses each year, which I believe is 67¢/mile. That means the average 15k miles per year runs you around $10k a year. Yikes! But now to my other rant…
I have to be honest, the egg one really irks me as well. There’s a clear and reasonable cause for the surge in pricing, the avian flu, and because of our oddball laws on eggs (protectionism?) we can’t really import them from elsewhere, so we just get screwed. But you’d think people were buying 50 eggs a week with all the complaints about the price of eggs. It was an election talking point! Yet the increase in eggs didn’t mirror the smaller increase of food prices over the same period, it was an outlier, and bound to decline, assuming the disease outbreak got under control. Idk, it’s been too large of a topic the last few months imo, but maybe people really are buying more eggs than I think 🤔
At 12.5 grams of protein each, eggs could be an inexpensive source. I know. When I was on chemo they were a primary source of protein, that and protein powder and boost/ensure. Much cheaper than the packaged drinks. I think I was eating three eggs a day and was encouraged to do so. I reached a point at which I could barely look at them. Oddly, my cholesterol is excellent.
There are well known ways to manage our personal fuel costs. I hear the complaints yet watch the many large pickup trucks and SUVs cruise by, usually with one or two passengers and an empty bed. I’ve seen the numbers for those Dodge RAM 2500s with less than 14 MPG combined fuel economy. (OK, a fuel efficient 1500 gets about 20-21 combined MPG.)
The happiest mileage people I know own a Prius; they don’t complain about gas prices. They like the price they paid for the vehicle and the high mileage, too. One tells me her 10 year old Prius gets about 45 MPG.
Me, I’m running a 2015 Chevy Cruze most of the time and the mileage is about 27 mpg combined and that’s based upon receipts. Cheap to own, too. 4 doors, 5 seat belts and generally ignored on the road.
Shifting to something like a Prius reduces effective gasoline prices by 33 to 50%. That’s like paying $1.60 to $2.11 per gallon. Or, buy a used Hummer. Whatever!
I own an energy sector ETF that has a 3.5% yield. The dividends help to pay for my gasoline expenditures.
Can’t emphasize your point more. It’s a solvable issue, and this is just one option. Gas is 33% less per month if you drive that much less, which I would guess at least half of Americans could figure out how to do that. Moving closer to your needs is also another option, if that’s on the horizon or within your means. Being able to walk places is really really beneficial to mental and physical health, and also to your fiscal health a lot of the time.
We got into the habit of combining trips and planning the local route. Post office, groceries, etc. When I’m getting a haircut G usually gets her manicure and then we do the groceries, hit the gas station, etc. This approach, in use for decades is very easy to accomplish but does require some forethought. We load soft insulated food carriers with ice packs to keep the perishables cold. The secondary savings include less mileage and that means fewer oil changes per year, less tire wear, etc.
I agree. My new car is only 4 cylinder but with a turbocharger. I can set the gears to comfort, economy, sport or normal. On a highway drive I hit 44mpg and can’t tell difference between the old six and the 4 cyl
Good news on gas prices from this CNN article:
“We believe we are at a tipping point for US oil production at current commodity prices,” Diamondback CEO Travis Stice said in a shareholder letter.
Of course, the silver lining for American consumers is that prices at the pump are very much under control. In fact, some analysts expect gas prices will trend even lower in the coming months, an outcome that could help offset potential sticker shock caused by the trade war.”
Be on the lookout for cheaper prices ahead! Heck, buy yourself a new pickup or a Hummer!
Gasoline prices are driven by global oil prices affected by many factors that can develop very quickly, by refining capacity and supply and demand. That means predicting is very tricky. An increase or decrease in supply by OPEC will be disruptive. Now we are entering vacation travel time when prices typically increase.
From a European perspective US gas prices are crazy cheap, but yeah when I’m over there I use Gas Buddy to see if there is decent arbitrage to be had in places I’m passing through. Top off in NV or AZ before reentering CA, that sort of thing.
From a recent article: “California’s crude oil refining capacity has dropped from 20 refineries around 20 years ago to only seven expected to operate by 2026. Valero Energy’s Benicia refinery, which processes 170,000 barrels per day and accounts for 9% of state capacity, will cease operations as part of the decline. The planned closure comes amid growing challenges facing refineries under California’s regulatory environment.”
Our AZ prices are currently $2.63 to $2.89 a gallon, about $2.00 less than prices in nearby CA. As supply decreases the prices go up.
maybe we’re just seeing very different prices.
I also know a lot of people are clinging to the $2 gas from the pandemic era, but those market conditions ar
r gas where you live? Mine is 3.20/gallon for regular unleaded. Would you say that’s expensive? I know gas prices are highly variable across the nation, so maybe we’re ju
Mark, how much is your gas where you live? Mine is 3.20/gallon for regular unleaded. Would you say that’s expensive? I know gas prices are highly variable across the nation, so maybe we’re just seeing very different prices.
I also know a lot of people are clinging to the $2 gas from the pandemic era, but those market conditions are not replicable, so I feel it’s pretty disingenuous when people argue that gas has gotten so much more expensive in the last few years, when really it’s been getting back to normal.
Liam, its not what the price is. Whether $ 2/gallon or $ 5/gallon. My point was that, from whatever baseline, they find a reason to raise prices “immediately” when something untoward takes place (storms close refineries, violence in the Middle East, etc) but lower prices ridiculously slowly. Oil has now declined over the past month or so, from $ 73/barrel to the current price of $ 57.12 (ie a 22 % decline) Yet the price of gas has dropped ~ from 3.25 to 3.05 – a decline of 6% – and its taken over a month to go down. Now, watch what happens when somebody acts up in the Gulf, or OPEC changes its mind on production…….the price at the pump will shoot up within 24 hours. Happens all of the time regrettably.
In reply to other respondents:
-I would never go out of my way to save 0.02 cents/gallon, however,
-I intentionally stopped to fill my tank passing through Buffalo last week on the way to entering Canada, as its much more expensive there (~ $ 6/gallon).
I mean, it’s not a 1-1 correlation. Crude oil prices are only part of the cost calculation, slightly more than 50% of the price according to the US Energy Information Agency. I would hazard a guess that every other aspect of the gasoline supply chain is more expensive these days, meaning decreased in crude oil prices are offset by rises in things like shipping, storage, consumption rates, rents or other payments for gas station buildings, increased cost of paying employee wages and benefits, etc.
As for why they can jack up the price all of the sudden, I don’t have the exact answer, but it’s a free market, so they have the right to do it if they want to. They’re probably just doing what they think is necessary to keep the business sustainable. That’s kind of the same story with the price of eggs, for example, so I don’t think it’s just gas stations doing this sort of thing.
Futures contracts also have an effect on gas prices. When per barrel price starts going up futures are bought to guarantee a maximum price. When the price later drops, the cost of the futures are factored into the price, causing the price to remain higher.
I should also point out the obvious that the cost of owning a car is really high, and it’s been ballooning over the last couple years. I think the average annual cost that makes the rounds these days is about $12k/yr, but that could be a little off. But every American significantly underestimates the cost of their car, it’s pretty bananas.
I find it amazing how triggered we are (myself included) by the cost of gasoline. We will drive miles out of our way to go to a a fuel station that is $0.10 cheaper. A grand savings of $2.00, assuming a 20 gallon tank. IMO it’s because of the public nature of the pricing.
It seems every intersection has four large signs trying to entice us to stop in and top off. The price of gasoline is even posted to the thousandths place, always a 9, because of our sensitivity ( $.18 more than we believe to fill that 20 gallon tank). If one of those signs is a penny cheaper ($0.20 savings on a tank). We will attempt crazy left turns, go around the block, or do a u-turn around the median into oncoming traffic to keep those two dimes in our pocket.
Gasoline retailers know this. They can see their competitors’ price in big red numbers on the opposite corner. When the wholesale price of gasoline drops a game of chicken starts. The retailers hold on to their profits until their volumes are impacted or their competitor blinks and is first to adjust their price. Then everyone follows suit.
It’s rare to find a gasoline retailer that does not behave this way. It seems Costco is one of the few. They markup everything including fuel a standard percentage. As a result I tend to find fuel retailers in competition with Costco Fuel to not only be cheaper, but also more responsive to changes in the market.
We have a friend who lives in Chicago. She would routinely go out of her way to exit Cook County to buy gas, thereby avoiding significant taxes. In Arizona we attend groupings of RVs from time to time. The Californians admit they use the internet to find a gas station in AZ, many stopping in Yuma prior to returning to CA. Of course, many of these RVs have 30 to 50 gallon gas tanks and the difference really adds up.
Every time the gas tank runs low, my wife has a sudden urge to go to Costco. We drive 20 minutes to save $2-3 on the fillup, then spend a hundred bucks in the store. I have given up debating the math with her.
I would happily pay marginally more for gas to avoid the Costco gas line circus I see by my apartment every day.
Well, not everyone. If I need to fill up I do check gasbuddy, but unless there is a significant difference I will usually just go to the place up the street.
RR this reminds me of a trip to Vegas to visit old friends. The four of us had paid a visit to a casino, where my friend’s wife had just blown a couple hundred bucks playing video poker. On the way home Kenny had to stop for gas. His wife went ballistic because gas was ten cents cheaper across the street, and Ken refused to do a U turn.
Costco net gas price = price at the pump minus 4% (for me). I used to find the Costco pump price to be less than other gas stations in the area. This has not been true for some time now.
I’d also add that many folks pay outrageous prices for small bottles of water at airports and venues without blinking an eye at the cost per gallon equivalent. Grocery stores are loaded with aisles of “flavored water” that folks mindlessly shell out $$ for. But the price of gas, as you mention, is always under the magnifying glass.
Our Costco in the KC area is always cheaper than gasoline stations near us. I don’t know about Sams since I’m not a member there. Also, with Costco’s credit card, the rewards on Costco gas are 5%. Hard to beat.
Thanks, Harry. Forgot about the recent discount increase. So my total savings is 7%. If I’m in the Costco area, great. If not, I’ve got other places I can go.
Get an EV. I have a plug in hybrid that gets me 40 miles on electric. This covers 95% of my driving. Probably the last car I’ll own.
Beyond the rare rentals, for helping kids move or domestic trips, we haven’t bought gas in many years. Fuel costs per mile for electricity are less than a third of gas. EVs are fun to drive and cheaper to maintain.
How does the cost of the electricity you use to charge compare with what you would pay at the pump for the gas equivalent?
I charge overnight here in Georgia between 11pm and 7am. Cost is approx 7cents per kWh. Premium gas, when I need it is about $3.00 a gallon. I haven’t filled up since I got the car in January. Haven’t noticed much of an increase in my electric bill since getting the car. Oh, and it’s a blast to drive!
The cost of electric is generally less than gas, depending on the time of day, and where you charge up. I would consider a plug in hybrid for the same reason Ted cites, though I fear for the electric grid.
Gas would have to get pretty expensive before I’d consider an all electric.
We charge overnight when demand is low to reduce stress on the grid.
The answer is pretty simple – there is tons of crude oil, but not many refineries are available to process it into gasoline. Several refineries have closed in the past year. Gasoline stocks are pretty low, which causes wholesalers to raise their prices.
Gasoline prices are seasonal as well, so they always go up noticeably in the summer if you live somewhere like the Midwest.
Gasoline prices vary from state to state. They include federal, state and local taxes. I do own some dividend paying oil stocks. Those dividends have been an effective annual refund of all of the gas taxes I pay, plus. Such dividends are included in the S&P 500 ETFs, but adding individual stocks or a sector fund does even better. Note, I don’t own a S&P index.
Federal taxes are $0.183 per gallon, California state tax is $0.68. California is the highest while the U.S. average state tax on gasoline is about $0.035. However, some cities and counties charge taxes too. In Illinois there is a Chicago tax of about $0.08 a gallon. Not satisfied with simply collecting gas taxes, there may also be state, county and city sales taxes!
Gas Taxes on each oil barrel account for about $17.54 in California. Sacramento law makers are exploring additional taxes because they say that with the rise of electric vehicles insufficient gas taxes are being collected.
I’m glad we’re not back in the good old days, like during the Arab Oil Embargo, which I did experience.
I live in a state neighboring CA. In recent years our gasoline prices have increased about 50%, mainly due to refinery issues and the closing of refineries in that state. (Our state excise tax on gas is only $0.18 a gallon). I’m not complaining about the price increase because the cost of living is much better here.
So buy some shares of XOM and CVX and be happy, (also sarcasm!)
Be thankful you don’t live in Greece where the price of gas is close to $8 a gallon.
Get a bike, drive less, consolidate your trips, plan trips ahead, carpool, take public transit, opt for a more efficient vehicle. This is an extremely solvable problem, especially for people of this forum. The price of gas is cheaper than it was 10-15 years ago. As we say in my family, quit your belly-aching!
Liam,
1) I have a bike. Hard to bring home groceries on a bike. Hard to bike in winter or rain. Takes a car to get to many nice bike trails BTW.
2) public transit: this is the US not Europe. Regrettably this country is optimized for cars, not public transit- excluding a tiny number of major cities
4) car pool: I’m retired.
5) please explain why you find this obvious case of price gouging acceptable?
6) I can easily afford any price of gas – that doesn’t mean that I, or we, should accept what is obvious price manipulation.
My first job, as a teenager, included delivering groceries. On a bike. You attach a basket or bag.
Be thankful you are not buying petrol in the UK.
I’m with you Mark. For years I have made the same observation about pricing.
Where there’s a will there’s a way. But if you can afford any price of gas, why complain about the price of gas? As I already mentioned, the price of gas (adjusted for inflation of course) is significantly less expensive than it was during and following the Great Recession. Frankly the price manipulation has been downward if anything. If you’re paying a lot more it’s because of your own choices. Do something about it. I did, and now I don’t even visit the gas station once every month. I still use my car when it’s practical, like groceries in the winter, but it’s more of a convenience at this point.
Most gas stations aren’t owned by the big oil companies or refiners. Think this is more the typical small business that has hedged their supply cost and until a new contract gets signed, they’re paying a higher price.
But I completely get the frustration, especially if you live in CA.
Scott: If “most gas stations aren’t owned by the big oil companies “, or they “hedge their costs”, then how is it they can raise prices in a millisecond, yet take weeks or months to lower them ?
Because businesses are good at protecting their bottom line?
With gas stations the level of competition (cause it’s usually easy to pick a different gas station) tends to force prices to a reasonable profit level.
It’s far more complicated than that. Refining capability is a big part as are local taxes and competition. Look at the same gas at different stations a mile apart and you can find a difference of fifty cents a gallon or more. Also, the summer travel season is coming. Anything that is a global commodity has more influences than what US oil companies do.
Dick, funny how refining capacity is not an issue when it comes to raising prices ? I know of no excuse for them to be able to raise prices instantly, yet take eons to lower them.
Somehow, we’ve accepted price gouging by the oil companies, which is really what this is, but we turn apoplectic when prices rise during a natural disaster.