This is the big story. As I observe human behavior around the price of gas, it always strikes me how curious people are about how gas is priced when the price is at a peak. I have been talking about more efficient vehicles and low interest rates on car loans for months and months, and now….at the worst possible moment in a negotiation for a fuel efficient car, people ask me if they should buy a low mpg car. The answer is till yes, but they should purchase that car when gas IS NOT at 5 dollars a gallon, as this adds 5K to the NPV of the car you may be thinking of to purchase. So sad that people want to not suffer, but they don’t want to plan either. Plan, don’t suffer.
Four principle factors determine the price of gas:
1) The supply and demand (currently demand is exceeding supply in CA because of refinery and pipeline outages). Part of this can be solved with regulations requiring code enforcement on dated fossil fuel delivery systems that should not be breaking from age at a total surprise to companies owning these assets and responsible for their maintenance. More fuel efficient cars also lower demand immediately. If you buy a hybrid tomorrow, your gasoline rate of consumption on your very next tank of gas will be half, immediately. As a recommendation, buy a hybrid when gas is at 3.50 not 5.00.
Drilling for more oil can have some effect, but many consumers do not realize that oil is sold to the buyer who is willing to pay the most, not necessarily a buyer in the US even if the oil is in our soil. Within the fuel efficient standard is a whole series of alternative fuel vehicles, be they natural gas or combined with electricity. My favorite combo pack is a gas/electric hybrid, because you don’t have to plug it into anything to charge as it generates its own electricity and such hybrids get 38 mpg or more. If you get 18 mpg, you’d chop your gasoline bill in half with a hybrid. In half. Oh, and they pollute less.
2) Taxes. California has a 37 cent per gallon additional tax. This is part of our unusually high gas price in this state. There are many arguments for paying more or less, but a tax has nothing to do with supply and demand, nor drilling, nor any other factor. Taxes are allotted to pay for their allotted categories. Some people believe that raising the tax on gas guzzler registrations is a good incentive.
3) Speculation is said to move prices for gas artificially and add unwelcome volatility to the marketplace, because the buying and selling of futures on these commodities have little do with anything other than a gentlemen’s bet, and generally at an increased cost to the gas buyer at the pump. Fortunes are made and lost on those contracts as buyers and sellers try to time the market. Regulations on how much speculation is legal and within what limits are always thought of only at moments like these, and quickly forgotten a day or two later as the “drill baby drill” crowd puts out propaganda that ends up selling the result of that additional supply to any buyer, including foreign buyers years after the well is drilled, not within a week as is somehow erroneously assumed.
4) Political instability worldwide, and uncontrollable environmental factors like the BP spill or a hurricane or some unrest in the Middle-East. This is not what has happened in CA for this week’s grotesque jump in gas prices. Price gouging is against the law. And the governor has taken some drastic and immediate steps to alleviate supply shortages in the past few hours.
The solution? More fuel efficient automobiles and commercial vehicles with combination technologies including natural gas which we have here in the US. Everything else is a band-aid.