Is Gasoline Busting your Budget?

I’m pretty lucky that I only have a 3 mile commute to work and $25 worth of gas usually lasts me a week.  The last time gas prices spiked in 2008, I had a 40 mile round-trip commute and spent $75 per week on gas.   I commuted for 25 years and it was an expensive proposition.  When gas hits $4 per gallon, it costs me $100 just to fill up the tank on my F150.  That’s a real budget buster.

We’re Getting Ripped Off

Driving by Windmills

Image by Kevin Dooley

I read an article last week that estimated 15% of gas prices are caused purely by speculators.  So, even though domestic use of gasoline in this country is down from 2008, oil prices aren’t.  Investment banks and hedge funds are bidding up the prices and taking a tidy profit, even though they have no use for the oil futures.  Oil companies are making record profits based on the speculation, so they are happy with the scam.  Don’t expect them to give up any of this money anytime soon.

Another way we are getting ripped off is by retail control of pricing.  Oil companies are quietly forcing out independent filling station owners and running the stations themselves.  This allows them to set the retail prices, which is why gasoline prices remain high even after oil drops.  Plus, they have consolidated the number of refineries, which gives them control of the supply of gasoline.

The government is a big part of the problem.  Not only do they need the tax revenue from energy, they have misguided energy policies that hurt consumers.  President Bush was an oil man and everything his administration did benefited the oil companies.  President Obama is for alternative energy and his administration believes high gas prices will move consumers away from oil.  Either way, they are picking winners and losers.  We are the losers.

What about Peak Oil?

There are some estimates that Peak Oil (the maximum amount that can be produced per year) may come as soon as 2015.  I don’t know if this date is accurate and to be quite honest nobody really knows when peak oil will hit.  But, there are major production drops in some of the world’s largest oilfields, including those in Mexico and Iran.  The major oilfields in Kuwait and Saudi Arabia have been pumping for over 60 years, so they will likely run dry, just as they did in Texas.  This could be offset by oil shale and deep-water reserves, but this oil is much more expensive to produce.

Peak oil doesn’t mean the world’s oil fields will suddenly run dry creating a panic, but it does mean oil will start to get very expensive.  With a lot of the world rapidly developing, high demand for oil could come at the same time as dwindling supply.  In 10-20 years, long-distance commuting by car may become too expensive for the average worker.  This could shift populations away from suburbs and bedroom communities, back to urban centers.

Combustion will Become Obsolete

It’s probably impossible for most Americans to imagine life without gasoline, but that’s where we are headed.  In my opinion, we are at the end of the era of burning things for energy.  Combustion is simply too toxic and inefficient.  Just as electric light bulbs made oil lamps obsolete, electric cars will one day make gasoline cars obsolete.  Once the cost, range and technology improve, more and more people will choose plug-in vehicles.  Future combustion cars will mostly be hybrids or extended range EVs.  Even diesel trucks will become hybrids, just like locomotives.

It won’t happen overnight, but it will definitely happen.  It has to.  There is simply no possible way for billions of people around the world to all drive combustion automobiles.  Not only would the environment suffer intolerably, there simply won’t be enough oil for everyone.  Developing nations aren’t going to allow us to consume most of the world’s oil, as we have in the past.  Something definitely has to change and I believe it will be the combustion vehicles.

The Bottom Line

The bottom line is that it takes a courageous mind to predict and embrace the future.  The majority will resist change until it is forced upon them.  The good news is that the future looks bright when it comes to energy and automobiles.

“Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe.”

Steven Chu – U.S. Energy Secretary

Recommended Reading

Balance Junkie – Are you ready for a Change?
Green Panda Tree House – Helping you Eat Out on a Budget
Beating the Index – Why is Investor Sentiment Cooling for Oil Services Stock?

This post was featured on the Carnival of Personal Finance over at Start Talking Cents.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s the best place on the web to get your financial advice.

26 comments to Is Gasoline Busting your Budget?

  • The quickest solution for gas prices resides in getting all the land locked oil in Cushing to the east cost refineries. Domestic oil production is growing in both Canada and the US, we need pipeline infrastructure desperately to use our cheaper oil rather than import Brent priced oil.

    EVs are only a matter of time, but do not hold your breath just yet, it will be years before they become the norm. Oil and NG will be part of the energy landscape for years to come.

    BeatingTheIndex recently posted..Gasoline ETF Tracks Gas Prices at The PumpMy Profile

    • Hey Mich,

      I agree it will take plenty of time before EVs become widespread. Twelve years ago hybrids became available and they only sold a couple thousand cars. Now, Toyota has sold 3-4 million worldwide. They sold 20 thousand EVs last year, so it’s a better start than hybrids had.

      Battery prices are dropping 8% per year. In five years the cost of EVs should be much more attractive. In 10 years, they could be cheaper than combustion cars. I think it will take a major technological breakthrough, before they hit the mainstream. A fuel cell, a super-capacitor or a much better battery would help a lot.
      Bret recently posted..Is Gasoline Busting your Budget?My Profile

  • I am at a time to replace my old car (17 & 15 y.o.). I hope to increase the MPG which currently 28 hwy and 24 city. I am driving less (7 miles one way to work)too, but all surface streets
    krantcents recently posted..Friday Night Links: Spring Break EditionMy Profile

    • My wife’s Pontiac is 13 years old and it’s got about 180K miles. We will definitely replace it with something that gets better mileage in the next couple of years. I don’t know if she will go for a Prius or a Leaf after having the Grand Am SE. 🙂
      Bret recently posted..Is Gasoline Busting your Budget?My Profile

  • Bret, I think you’re right on about combustion. It’s a relatively ancient, primitive technology. With the massive investment in infrastructure dedicated to combustion, it’s going to take a generation or more to move to more advanced technologies. But I think you’re right, it’s inevitable.
    Kurt @ Money Counselor recently posted..Beware IRS Form 3949 AMy Profile

    • I’m glad you agree Kurt.

      Combustion automobile engines are only about 25-30% efficient. They waste most of the energy from the fuel, instead of using it for propulsion. And, the amount of complexity is absurd. There are entire systems for smog, cooling, ignition, vacuum, fuel, exhaust, timing, lubrication and transmission. At some point, it’s going to be cheaper and easier to replace it all with an electric motor, controller and battery.

      There is a lot of money, infrastructure and influence supporting combustion. But, people will ultimately vote with their wallets and do what is best for themselves. If EVs evolve as they have been, it will take decades. If there is a big technological breakthrough, they could overtake combustion vehicle sales in a few years. This will happen even faster in developing countries, where they have little infrastructure and gas is relatively expensive.
      Bret recently posted..How to Save a Million Dollars on a Modest IncomeMy Profile

  • Eventually, markets adjust. I do think we are years away though, in terms of a broad shift in actually using different technology.

    In the short-term, the consumer is not purely at the mercy supply and demand. It is what it is. Personally, I’m taking more public transportation of late and it’s working well.
    Tie the Money Knot recently posted..How Much Time Do You Spend on Facebook?My Profile

  • A big problem for the U.S. will be if foreign trade starts to take a tumble as foreign demand for U.S. denominated debt declines over time.

    The government’s onerous regulatory regime, nest of subsidies and crony capitalism does not help things. I cannot for the life of me understand why more effort is not being done to develop natural gas, for one. There is a market in North American energy, just waiting to be tapped.

    You think gas prices are expensive, you gotta see what they’re like up here, let alone Europe. I think we’re paying equivalent of nearly $6 US here in Canada…
    Invest It Wisely recently posted..What Do You Lose when You Decide to Stop Working for the Man?My Profile

    • Hi Kevin,

      I remember being up in Toronto and buying gas in litres, instead of gallons. That makes it hard to figure out why how much a gallon really costs. As much as we like to complain about our taxes in the sates, we are pretty fortunate.

      I don’t mind paying gas taxes for roads and freeways. But, for many years the government was siphoning these taxes into the general fund. Luckily, voters put an end to that.
      Bret recently posted..How to Save a Million Dollars on a Modest IncomeMy Profile

  • There are flex-fuel vehicles available in Brazil that run on gasoline, ethanol, *and* compressed natural gas. It would sure be nice if we could see more of that here in the U.S.
    Andrew @ 101 Centavos recently posted..Cut Out That Middleman! Buying Local Saves You MoneyMy Profile

    • I respect Brazil tremendously for becoming energy independent many years ago. I wish America would get serious about this, instead of constantly bickering back and forth. Our idea of an energy policy is to just give subsidies to everyone.
      Bret recently posted..3 Reasons to Control your own AssetsMy Profile

  • Wow, F150 guzzles gas. Begin to save – buy Porsche Panamera. It uses up to 3-4 liters of gas per 100 km.
    Alexander Collins recently posted..Understanding Leverage and Margin in Forex Trading and Avoiding DisasterMy Profile

    • I don’t think I would save very much money buying a Porsche Panamera. That’s a pretty expensive vehicle.

      I have the F150 because my old company gave me an allowance and told me to buy a truck for work. I have a small car (Chevy Cavalier) that I usually drive, but it needs some repairs right now. I plan to get an electric car and keep the truck for camping and hauling.

      BTW, I bought the F150 because it got the best mileage for an American V8 truck. It gets 20 MPG (11 liters per 100 KM) on the freeway. This isn’t great mileage, but it was the best I could find at the time.
      Bret recently posted..What I Learned from my First JobMy Profile

      • I also like electric cars as Chevy Volt or Nissan (forgot the model). But they’re overpriced now ’cause of price of energy batteries.
        Alexander Collins recently posted..Pros and Cons of Forex Mobile TradingMy Profile

        • The model I really like is the BMW i3 that will come out next year for $35,000. It is built from the ground up to be an electric car. So, it has an aluminum frame, carbon fiber body and tall low-rolling resistance rims.

          All of the other EV models are converted gas cars that use a steel frame and body panels. They have regular rims with just LRR tires.

          Leaf = Versa
          Volt = Cruz
          Focus = Focus

          I am also waiting for the prices to come down and I think it will happen in a couple of years. Battery prices dropped 14% last year and over 20,000 EVs sold. As production ramps up, the prices will come down.
          Bret recently posted..How to Save a Million Dollars on a Modest IncomeMy Profile

  • tinafreysd

    By taking the time to plan for the amount of gas you will need ahead of time, you will be better able to budget money for the more entertaining aspects of your vacation, such as your park tickets and dinner out..
    tinafreysd recently posted..Post Acne HyperpigmentationMy Profile

  • I think the biggest cause for rising gas prices at the pump is the Fed’s bogus quantitative easing campaigns and their (unspoken) decision to promote monetary policy that will eventually inflate our way out of the massive government debt that’s been run up.

    As the value of the dollar continues to plummet via these actions, the price of oil (which is priced on the world market in dollars) has no choice but to rise — with little regard for demand.
    Len Penzo recently posted..100 Words On: Why It’s Time to Eliminate the PennyMy Profile

  • We need not only to own hybrids and electric vehicles but also we need to drive less.

    When I go on the high way, quite a considerable number of vehicles are SUVs – especially the maximum size – with only one person sitting.

    If you could drive a vehicle without the driver (empty veh.), Americans would do it just because they are Americans and they like to waste. May that be gas, food, clothes. Their shopping and wasting habits have no limits.

    Americans in general are never known for saving money.

    • Americans are definitely wasteful, especially compared to the rest of the world. But, we are starting to get better. They are selling a lot more high-mileage cars and cross-overs and fewer big trucks and SUVs. As for driving less, I completely agree. The total miles driven is less than a few years ago and I don’t think it’s just because of the price of gas. I think people are choosing to drive less. I know I am.
      Bret recently posted..Problems caused by Sudden WealthMy Profile

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