Financial reality of rising gas prices
For many families, surge means cuts in activities, essentials
A driver in Belleville, New Jersey, cut his cable and downsized his apartment to save money for gas.
A retiree in Vallejo, California, said he had stopped driving to go fishing because the miles cost too much in fuel.
An auto repairman in Toms River, New Jersey, doesn’t go to restaurants as often.
And an Uber Eats deliveryman said he couldn’t afford frequent visits to his family and friends, some of whom live 60 miles away.
“Times are tough right now,” Chris Gonzalez, 31, the Uber Eats driver, said as he filled up his tank at a Safeway gas station off Interstate 80 in California.
Millions of drivers have acutely felt the recent surge in gas prices, which last month hit their highest level since 2014. The national average for a gallon of gas is $3.41, which is $1.29 more than it was a year ago, according to AAA.
Even after a recent price dip in crude oil, gasoline remains 7 cents more per gallon than it was a month ago.
While consumers are seeing a steady rise in the prices of many goods and services, the cost of gas is especially visible. It is displayed along highways across the country, including in areas where a gallon has climbed as high as $7.59.
Steeper gas prices are pushing people to rejigger household budgets, sometimes by forgoing leisure activities and in other cases by cutting back spending on essentials.
Consumers glimpsed the prospect of some relief this month as oil prices fell, responding to a strengthening U.S. dollar along with concerns about impending COVID-19 lockdowns in Europe, and gas prices began to stabilize.
Though there is normally a delay between a drop in oil prices and cheaper gas, President Joe Biden instructed the Federal Trade Commission last week to investigate why prices at the pump haven’t declined as much as might be expected, citing the possibility of “illegal conduct” by oil and gas companies.
On Tuesday, Biden ordered the release of 50 million barrels of crude from the nation’s emergency stockpile — the Strategic Petroleum Reserve. Britain, China, India, Japan and Korea will also open up their oil reserves in an effort to combat soaring global prices on oil.
Gas prices have gone up in part because of fluctuations in supply and demand. Demand for oil fell precipitously in the early months
of the pandemic, so the Organization of the Petroleum Exporting Countries and other oil-producing nations cut production. In the U.S., reduced demand led to a substantial decline in drilling; the country’s oil rig count was down nearly 70% in summer 2020.
But over the past year, demand for oil recovered far faster than OPEC restored its production, and crude oil prices doubled to as much as $84 a barrel.
The shutdown of some large U.S. refineries during the pandemic also tightened the oil supply. Since the beginning of 2020, some 5% of the country’s refining capacity has closed, responding to a decline in travel.
“When you have demand recovering but you’ve eliminated permanently some source of the supply, then prices go up,” said Andy Lipow, president of Lipow Oil Associates, a consulting firm in Houston. “The consumer is feeling pain at the pump.”
For drivers, the rising costs have added stress to commutes and weekly routines; suddenly, popping out for errands or dropping children at school has taken on new financial weight. Like breakdowns in the supply chain to labor shortages, gas prices have also contributed to a growing sense among consumers that the economy is not fully functioning for them.
Aldo Mccoy, who owns an auto repair shop in Toms River, watched the numbers on a gas pump flash higher last week as he filled up the tank of his 1963 Chevrolet Impala. He recalled recently filling his 2003 Cadillac Escalade and seeing the price go above $100, where it used to be $45.
Mccoy said he and his staff were working more than 15 hours of overtime each week to compensate for the extra money they spent on gas. He has also cut back on his household spending.
“You don’t go out to stores much, or out to dinner,” he said. “You can’t travel to enjoy yourself. It’s off the table now.” louise Tomitz, 74, who is retired and lives on Social Security in Toms River, said the price of gas was making it difficult to cover the costs of visits to her daughter nearly an hour away in Middletown, New Jersey.
“I don’t work now, and then you have to pay all this extra money for gas and it’s affecting my budget,” Tomitz said. “It’s getting rough.”
Drivers shocked at gas prices are seeing more than just the effects of crude oil costs. Compliance with renewable-fuel standards can add more than 10 cents per gallon, the price of ethanol has increased, and labor shortages in the trucking industry have made it more expensive to get gas from terminals to stations.
Energy analysts point out that gas prices have been higher in the past; in 2008, the national average rose above $4.10 per gallon. Adjusted for inflation, that would be equivalent to $5.16 today. They’re optimistic that the increase in travel and gas demand is a reflection of the economy’s rebound from the pandemic, though they worry that rising prices could make people cut back on other spending.
“If gas prices rise so much that it affects consumers’ disposable incomes, this would weigh on discretionary spending,” said Fawad Razaqzada, a market analyst at Thinkmarkets. “It would be bad news for retailers.”
In California, where the average price of a gallon is the highest in the nation, at more than $4.60, drivers said they were changing their behavior.
Some sought out cheaper spots, like Costco and Safeway gas stations, to save a few dollars.
At an Arco station in one San Francisco neighborhood, a line of cars extended into the crowded street last week. Some drivers searched for change. Others grumbled about the prices, which have shot up to as much as $4.49 at the Arco — known locally for its normally cheap rates — and up to $5.85 in the most expensive part of the city.
Thirty miles northeast of San Francisco in Vallejo, drivers lined up at the Safeway gas station off I-80, where the price was $4.83 per gallon.
The cost can be especially challenging for people who own businesses that depend on transit.
Mahmut Sonmez, 33, who runs a car service, spends nearly $800 on gas out of the $2,500 he earns each week driving people around New Jersey.
To save money, he moved in September into a Belleville apartment that is $400 cheaper than his previous home. He also cut his cable service and changed cellphone plans.
If gas prices keep rising, Sonmez said, he will consider changing jobs after nine years in the industry.
“Somehow we’ve got to pay the rent,” he said.