Beat And Battered

Saving money on gas can be as simple as using gas rewards credit cards and as complicated as moving to a new town.  The price of gas was heavy on my mind yesterday as I filled up the tank after a weekend trip.  I started thinking about the wide range of money saving techniques people use to save on gas, here are some tips I’ve seen in action.

Gas Rebates
Saving on gas with gas rebates is something I’ve talked about before but I have to keep mentioning it. As the price of gas goes up, so do the gas rebates that they’re offering.  Our grocery store was running a special today, take your grocery receipt to the store owned gas station and save 25 cents off each gallon of gas.

These are unadvertised specials but they always seem to happen on Sundays. The gas clerk confirmed this pattern and said this was one of the best deals they’ve ever offered on gas.  So keep an eye on your local grocery chain if any of them have attached gas stations, especially on the weekends.

There was one guy at the gas station who had 6 gas cans in the back of his truck that he filled up before topping off his tank.  At 25 cents discount per gallon he saved a good chunk of change by “pre-buying” his gas.  I struck up a conversation with him in line that leads to the next way to save money on gas.

Gas Credit Cards
The guy with 6 gas cans was actually going to use two different credit cards to pay for the gas he had purchased.  The last time he had tried this approach he’d bought so much gas that he triggered the maximum gas purchase on his credit card.  He came prepared this time with both a Chase Freedom card and an American Express Blue Cash card.

Hey if you’re going to buy that much gas, why not earn some cash back on it? Those are both cards I mentioned in my review of the best gas credit cards to save you money at the pump.  The complexity level of this one is pretty low, simply pay with the gas rewards card and earn cash back.

Fuel Efficient Transportation
While the first two tips were about saving money on the gas you purchase, the next few cover reducing the amount of gas you use.  Several people at my office have started riding the bus to work and that’s cut way back on the gas they use each week.

Another of my co-workers bought a Toyota Prius Hybrid several years back when they first came out.  Most people couldn’t believe he waited 6 months and then paid a premium price for the hybrid car at the time but now they eye the gas mileage enviously.  In fact, his talk of savings talked another guy on his team into buying a Prius Hybrid. Plus the new Prius owner is saving even more money because he started carpooling in addition to having a fuel efficient car.

Working from Home
The next tip is more complex and could involve changing jobs. While it’s not a four day work week a former co-worker of mine took another job that lets him work from home on Wednesdays.  It wasn’t the sole deciding factor in his move but it certainly played a role.  In an even bigger step, one of his buddies is actually switching jobs so that he can tele-commute full time. 

The amount of money they’re saving by cutting out one or all of the commute days each week is substantial. Of course your company may not have these policies in place so you might have to work with your boss to save money on gas.

Moving Closer
The most involved tip I’ve seen in action so far is the strategy of moving closer to your regular driving destination.  My parent’s neighbors were both commuting between two different cities every day.  When gas prices were low it wasn’t a problem but their fuel bill was getting so high they decided to pack up and move. 

One of the people on my team at work drives over a hundred miles round trip to work and back each day.  He spends over $600 a month in gas, which is one of the reasons he’s considering moving out of the boonies and closer into town.

Gas Saving Summary
As I mentioned, each of these approaches requires different levels of changes in your life.  Using gas credit cards  and getting gas rebates is pretty easy while moving everything you own is a much bigger deal.  The nice thing is, it’s a free country so the choice of whether we want to follow some of the gas saving techniques or none of them is up to us.  I’d recommend at least starting small & easy and working your way up to bigger gas saving changes.

Last time I filled up my gas tank it cost me $64.28. As I was standing there at the pump I started thinking.

I realized I had absolutely no idea why the price of gas was so high.

I mean sure, I get emails from MSN money every day telling me that oil hit a new record high.

I hear mutterings about China, and problems in the Middle East.

But, when it came right down to it, all I really understood was this:

I’m getting squeezed at the pump – and I want to know why.

So, with that in mind, I thought I’d do a little digging, and share with you what I learned.

Basically the price of gas breaks down like this:

• Federal, State and Local Taxes account for about 15% of the price per gallon.
• The price of crude oil accounts for roughly 55% of the price per gallon.
• The cost of refining the oil is about 15% of the total price per gallon.
• Advertising costs also make up about 15% of each gallon of gas.

This is just an average breakdown. The actual numbers vary from year to year and company to company.

Now, the taxes I understand. I’m not happy about it, but I get it. I also understand the refining costs and the advertising costs. Based off of these numbers, I decided that the main reason I am getting my pocket picked twice a week when I fill up has to be the base price of crude oil, which is at an all time high.

So, what’s going on with crude oil?

High Demand:

Right now there is a booming commodities market where there used to be hardly any at all. Namely, all over Asia – especially China and India. They are demanding all types of commodities in quantity, especially oil. Over here in the U.S. much of the way we live our lives also depends on oil. Not only do we put the refined version of it into our cars as gas, but it’s used in everything from plastic bags to Styrofoam. Even though oil prices are at an all time high, our demand is not really decreasing.

Low Supply:

There have been disruptions in the supply of oil all over the world in the last few years. Nothing that would normally make much of a difference, but when you couple it with record demand for oil and oil based products, it is pushing the price up. Here are a few specifics:

• In April of 2008, Nigerian rebels launched attacks on Exxon Mobil. They temporarily stopped production of 800,000 barrels of oil a day.
• On July 18,2008 Eni SpA (Italy’s largest oil company) also stopped production in Nigeria because of faulty pipelines. They will lose 47,000 barrels a day until the problem is fixed.
• Saudi Arabia (which claims to own about 21% of the world’s oil) isn’t exactly falling all over itself to increase production – but they are finally going to. The good news is, they are planning to increase oil production by as much as 500,000 barrels per day starting this month. (July 2008)

Fear of a Limited Supply:

Many economists buy into a theory that we are reaching “Peak Oil.” That’s the theory that the world’s oil reserves are limited and that we will eventually hit a point where we reach a maximum output. A place where companies will begin to cut back on production to avoid running out of oil.

While there’s no arguing that oil reserves are limited, exactly when we will reach “Peak Oil” is anyone’s best guess. With the increasing demand from Asia, this theory is getting more and more attention.

Some people even speculate that Saudi Arabia has refused to produce more oil because they are afraid of reaching a “Peak Oil” phase sooner than anticipated.

War in the Middle East:

Obviously, things aren’t looking too good over there. If Iran is attacked and they actually back up their threats by closing off Straits of Hormuz then they would effectively cut off one fourth of the worlds oil supply. If that does ever happen, oil prices at $200 a barrel will seem generous. The threat of that alone is probably driving oil prices higher than they have to be.

The Declining Dollar:

In some ways, it appears we can thank the housing bubble for the rise in oil prices too. The price of oil is measured in U.S. Dollars. When our dollar value declines compared to the rest of the world, then the price of oil goes up because it takes more dollars to reach the actual value of a barrel. (Gotta love that logic!)

It’s our fault too:

Yeah, I know, that’s a hard one to swallow. Still, some economists believe that as the U.S. economy takes a dive, most investors start looking for “safe” places to put their money. Usually, they turn to commodities. This actually drives the price of those commodities up because of the sudden increase in demand.

So, what do I think about all this?

There are some investors who believe that oil prices are in a bit of an unnatural bubble right now. While I do agree that prices are at record highs, I also believe that this is just a natural part of the commodity process. Commodities run in cycles. When demand outstrips supply, prices rise. Usually there is a short period where supply stays low, and prices stay high.

Eventually, more and more companies with $$ signs in their eyes jump in and increase production. In the mean time, we (the consumers) simply find ways to do without whatever it is as often as we can. So, eventually the increased supply and decreased demand helps the price to “right itself”.

There are a couple of wild cards in this scenario. Mainly the increased demand from developing countries and the threat that we may be running out of oil sooner than anticipated. Still, I believe that eventually the price will right itself (though I don’t think the price of gas will ever return to it’s pre-cycle lows).

In fact, I think that if you truly understand the principles of supply vs. demand, as well as how the economy, and government factor in, then you can apply that knowledge to any commodity. The same rules are still going to apply, whether you are talking about oil, or oranges.

Allright. I’ve told you what I thought – It’s your turn!

Do you think we are about to see a turn around in gas prices? Do you think now is a good time to begin investing in oil, or a good time to start selling your shares?

Let me know – you can use the comment form below! And, if you loved (or hated!) this article, then this post explains how you can offer your feedback for a chance to win $50. Thanks!

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