For anyone who drives, it is apparent that gasoline prices are back down to nearly their lowest levels in a number of years. This is welcome news to many consumers.
Of the items that consumers budget for on a regular basis, gasoline is one of the most variable. For higher income consumers the cost of gasoline is probably not that significant, but for lower and moderate-income people it is definitely a noticeable expense.
For example, if the cost of filling up one’s car goes from $40 to $60 in a week, that may not sound too significant. However, for two drivers in a household, on an annualized basis that change would be over $2,000 dollars.
The change in gasoline prices is having an impact on the purchases of vehicles by consumers. The share of SUV’s being sold relative to passenger cars has been increasing, as gasoline prices have dropped.
One thing that consumers should be aware of is that the price of gasoline in the future can be significantly different versus what it is today. When purchasing a new car there will be listed an annual estimate of fuel costs. Consumers should be aware that this cost can vary dramatically.
With lower gasoline prices and the greater demand of SUVs there is less discounting occurring in the truck market versus passenger cars. For someone who is somewhat indifferent to purchasing a car versus an SUV, better deals can be obtained buying a passenger car at the present time.
There are certainly benefits to owning an SUV, such as more room on long trips and having more space for bulky purchases. However, for someone who might only need this extra space occasionally, renting an SUV when needed might be a more financially astute move. The cost an inconvenience of the occasional renting would need to be compared to the differential in price between the passenger car and the SUV plus the added gasoline expense of the SUV.
For people who have been driving a number of years, there is some expectation that gasoline prices will continue to jump around. However, the major unknown is whether the price of gasoline will stay closer to the current $2.50 per gallon, or jump back to the $4 per gallon level we saw in recent years.
Unfortunately, there is no way to know for sure where gasoline prices will average in future years. Oil is a global commodity, so its price is influenced not only by what is going on in our country, but literally the entire world.
Currently the supply of oil is quite plentiful. Saudi Arabia is producing at record levels, and Iran and Iraq are producing at levels significantly higher than they have in recent years. However, the Middle East is a volatile region and major supply disruptions can occur at any time.
The demand for oil and gasoline is likely to gradually diminish in more mature economies, such as the U.S., Europe, and Japan, due to greater gains in fuel efficiency.
However, in faster growing less developed countries the demand for gasoline is likely to increase. Therefore, worldwide demand for oil is likely to show modest increases for the next few years.
The general consensus is that the price of gasoline is not likely to fall much below current levels. However, barring a major supply disruption it is not likely that gasoline prices will rise back to the $4 per gallon level any time soon.
With gas prices relatively low at the present time it would be advisable for consumers to be saving a little extra. If someone is living paycheck to paycheck when gasoline prices are low, a significant rise in prices could cause that person to experience financial difficulty.
Likewise for someone purchasing a new car there should be enough flexibility in one’s budget, that if gas prices were to rise to say $4 per gallon, that person could still afford the car. If not, then someone should look for a more fuel efficient, or lower priced car. Even though significantly higher gas prices may not be likely, consumers should still be prepared for that possibility.
