How to Save on Gasoline Costs
After dropping below $70 per barrel in June, oil prices have since been climbing, now surpassing $80 per barrel. Consequently, gasoline prices are on an upward trajectory, a correlation that might not be clear to many. It’s worth noting that shifts in oil prices fundamentally drive the bulk of fluctuations in gasoline prices.
In cases of potential disruptions to oil or gasoline supplies, such as hurricanes or pipeline outages, I frequently suggest to friends and family that they fill up their tanks. Aside from such situations, there are some measures consumers can adopt to cut down on gasoline expenses.
Use the Right Fuel Grade
Most importantly, make sure you are using the correct octane grade of gasoline recommended for your vehicle. According to AAA, drivers waste over $2 billion annually by unnecessarily purchasing premium gasoline for cars designed for regular fuel. Many might think they are treating their car by purchasing premium gasoline, but this can actually damage your engine.
Premium gasoline has a higher octane rating, which measures its resistance to engine knocking under compression. However, the octane rating does not indicate higher energy content or overall quality compared to regular gasoline.
Using a lower octane gasoline than your owner’s manual recommends can cause knocking, while using a higher octane provides no benefit unless specifically required. Check your manual to see if premium gasoline is recommended. If unsure, try a tank of premium and monitor for knock reduction. Otherwise, you are likely wasting extra money per gallon on unnecessary high-octane fuel.
When oil prices rise, gasoline prices usually rise very quickly. When oil prices fall, gasoline prices don’t follow nearly as quickly. This phenomenon is commonly referred to as “rockets and feathers” (i.e., up like a rocket and down like a feather).
Several studies have confirmed this effect. But why does it happen? A Wall Street Journal article reporting on this effect a few years ago posited an interesting theory:
“The theory of the day to explain sluggish declines at gas pumps points squarely at consumer behavior, as the folks at Knowledge Problem pointed out recently. When prices are rising, everybody drives all over town to shave a cent off each gallon. Once oil and gas prices start to fall, people get thrilled by $3.88 gas, and fill up at the corner station. Since there’s less comparison shopping, gas stations don’t have to change prices as often.”
In a nutshell, consumer behavior impacts gasoline prices. Thus, you should compare prices before filling up by using apps like GasBuddy. While gas stations near each other tend to have similar pricing, checking a wider area can reveal significant savings.
For instance, where I live in Phoenix, regular gasoline prices currently vary by about 10% between the highest and lowest priced stations. Though crossing a city may not make sense, checking a few nearby options can lead to small but consistent savings per fill up.
One final thing to consider is buying shares in a refiner like Valero (NYSE: VLO). Refining companies tend to do very well when gasoline prices are rising, so owning shares in one can help offset the cost of gasoline. For example, as gasoline prices have risen over the past month, shares of Valero have risen by 20%. Such a rise could more than offset your higher gasoline bill.
Long term, purchasing a more fuel efficient or electric vehicle will provide greater fuel savings. But for most drivers, following these two simple tips will provide immediate relief at the pump by maximizing savings on gasoline purchases.
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