Why Gas Prices Are Rising While Oil Prices Slump, and What Can You Do About It

gas stationThe average price of gasoline in the Birmingham metro area is currently $2.19 a gallon and $2.37 nationally.  Prices have risen steadily over the last month after bottoming out in late January when you could find prices as low as $1.72.  Where I live, prices have jumped almost 20 cents in the last week alone, with a huge 10 cent jump in one day this past weekend.

So what is causing gas prices to jump so much?

The Reasons Behind The Increases

You might think that the reason for the jump in prices is oil. The price of a barrel of oil, the main ingredient in refined gasoline, is currently trading on the New York Mercantile Exchange for $50.76 for light, sweet crude.  Brent crude, the global standard, is trading for $60.48 on the ICE Futures Europe.  Both are up over last week, but down substantially from a year ago.  And in reality, there actually is no shortage of oil to drive the price increase.

What really is happening are several events that have created the “perfect storm” in recent weeks.  The first is a steel worker’s strike and an explosion at an Exxon-Mobil plant in Torrance, CA.  The strike is affecting 12 refineries that account for almost a fifth of total U.S. production.  The refinery explosion is affecting Southern California more than the rest of the country.

The second issue is the weather.  The colder than usual winter weather across much of the country has increased demand for heating oil, which means that not as much gas can be produced.  Combine this with the yearly seasonal change over in gasoline blends, when refineries switch from winter blends to summer blends, and stocks are normally lower due to this, and the amount available to drivers is much lower than usual at this time of year.

The third reason is global uncertainties, especially with the state of affairs in Libya.  The North African country holds the continent’s largest oil reserves, but has been mired in violence for weeks.  Libya is currently only producing at one-third it’s capacity.

But as noted earlier, oil prices have slumped with the increase in domestic production the last few years, decreased demand for gas as efficiencies increased, and production by OPEC countries, Saudi Arabia in particular, have been maintained even as the price of crude dropped.  In fact, there is so much oil in this country that we face the possibility of running out of storage space for it according to the U.S. Department of Energy in a recent report.  It currently is at its highest level in 80 years.

Should oil storage reach it’s limit, which is a very real possibility by the beginning of April, the price of oil could collapse to as little as $20 a barrel, analysts say.  In the short-term, that could be very good for drives as gas prices could once again drop sharply by the Summer driving season.

However, once oil levels are lowered following this, it is inevitable that gas prices will once again rise later in the year.

What You Can Do About It

The best thing you can do to stave off the gas price increases is conservation.  Don’t drive as much, plan out your trips to make the most of your time out by combining tasks.  Make sure your tires are inflated to their proper level – cars with properly inflated tires use less gas than those with under inflated tires.  Choose to drive a car with higher gas mileage than say a large truck.

Another simple trick you can do is to buy prepaid gas cards.  Grocery store chain Publix, with stores across the Southeast, recently ran a promotion for an extra $10 on the purchase of a $50 gas card when purchased at the same time as a $100 grocery order.  You drive, you eat, and if you had the $150 available you were able to get a 7% return on the purchase.  Even if you don’t score bonuses like this, buying gas cards is still a good idea if you have the money available.Costco, Sam’s Club and Murphy Oil locations at Walmart stores all offer lower prices for customers who use their prepaid cards than customers who pay cash or by plastic.  It’s their way of ensuring return customers.  Another plus to buying cards now is that when prices go up again, and they will, you bought gas at the current value of $20.  Finance majors will understand that, but trust me, it makes sense.

The easiest way to save money is to use technology to help find the lowest prices in your area.  Two of the most popular apps are GasBuddy and Waze, which are peer operated sites with real-time pricing information for stations across the country.  Waze has also become popular with being able to give driving directions including real-time traffic and alternative route information.

Finally, one important thing to remember is that it does matter where you get your gas if you are looking for low prices.  If you think that it’s more expensive at your local Shell station than the mom and pop station down the road, that’s because it is and for one simple reason.  All those “branded” stations, the ones affiliated with big oil companies like Exxon, Shell, BP and others are ALL under contract for the right to use that name, even if the station is locally owned.  The name recognition does help bring in traffic, and to some there is a comfort in stopping at a recognizable name.  But those stations pay fees to keep the name on the street, for their customers to have the ability to use the company’s credit card, and most importantly, the are obligated to buy their gas from the oil company or their contracted suppliers at specified rates.  That’s why you see the same price, or close it it, from station to station.  Independent stations, on the other hand, don’t pay those fees and have the ability to buy their gas from any supplier and for any price they want, thus the often lower prices at these locations.

Bottom line: prices change due to market, geo-political issues, storage capacity and refinery issues.  There’s not much you can do about those factors.  But by taking simple steps everyday, you can make it a little less painful at the pump and keep more money in your pocket.

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