Gas is up but oil is down? Here’s what drivers need to know
Apr 20, 2022
3 min read
We’re all feeling the dent in our wallets as the cost of filling up the tank remains sky-high. But while the average cost per gallon is hovering around $4, you might have seen the price of oil has fallen. It’s a contradiction that understandably leaves many drivers with some questions: Why aren’t the prices at gas stations reflecting that drop? And why do prices seemingly go up faster than they come down?
In the gasoline industry, they have a phrase for this phenomenon: Rising like a rocket and falling like a feather.
Why it matters:
Hmmm, that feels a little unfair. But the price of oil is only part of the story. Sure, oil accounts for the majority of the price we pay for a gallon of gas, but many other variables (inventory levels, regulations and taxes) also impact the price difference between oil and gasoline. For the past year, the gap between oil and gas has been largely due to supply vs. demand — with higher demand and lower gasoline inventories.
But wait, there’s more. The cost of compliance and environmental regulations are at record highs, the price of corn (used to produce ethanol, another common ingredient in most gasoline) has skyrocketed and increasing state gas taxes also impact how much you pay.
All of this is happening as the war in Ukraine broke out, further impacting supply challenges. And now the summer driving season is upon us, increasing demand and the cost to produce gasoline. As I said, oil is just one part of the story.
What it means for you:
With lots of factors to consider, the reality is, that higher gas prices may not go away as quickly as we would like. That means it’s time to budget for higher spending on gas.
If you’re looking for a longer-term solution, you could ditch the gas line altogether and consider plugging into the electric vehicle (EV) market. While there are more than a few reasons to make the leap, 88% of consumers cite gas prices as an influencing factor for their next vehicle purchase. And while a new car is a big investment, remember many states offer tax credits for EVs, and it’s an expense that will get you off the roller coaster ride that is gas prices and likely help you save in the long run.
Is it just me or is the saga with Twitter and Elon Musk shaping up to be the next Barbarians at the Gate? Whether Musk takes the social media company private or not, his actions have put the company in play to be sold or acquired. Twitter has hired JPMorgan and Goldman Sachs to represent them. And private equity firms like Apollo Global are already offering to provide the cash for a transaction. The big tech companies have thus far been silent on their interest in pursuing a deal with Twitter, but you can bet they are doing the math.
In other words, just like in the days of RJR Nabisco, this could turn into a bidding war between the wealthy. I wonder who will turn this saga into a miniseries?
Lindsey Bell is an award-winning investment professional with a passion for personal finance and more than 17 years of Wall Street experience. Bell’s unique ability to connect the dots between data and real life and craft bite-sized money ideas that people can use and apply stems from her deep background as an analyst, researcher and portfolio manager at organizations including J.P. Morgan and Deutsche Bank. She is known for demonstrating why and how an understanding of all things money improves a person’s finances and overall well-being. An ongoing CNBC contributor, Bell empowers consumers and investors across all walks of life and frequently shares her insights with the Wall Street Journal, Barron’s, Kiplinger’s, Forbes and Business Insider. She also serves on the board of Better Investing, a non-profit focused on investment education.