The uncertainty begins – and gas prices rise

The initiation of the tariff programs by the United States current administration was projected to start the introduction of uncertainty into the marketplace.  Regardless of the market segment we are trying to look at and analyze, such as the stock market, or the grocery market, consumer goods, assets, etc, we knew that there would be a significant and probably wild fluctuation on probability projections versus real time prices.  The hesitancy and the temporary pausing of tariffs only added to the uncertainty but the now forgone conclusion of additional tariff levies on various exporters, especially China, is now for certain adding pricing increases on products as businesses try to anticipate future costs.  This will be visible on all levels as the summer heats up. 

The only exception appears to be the oil markets – at least as of right now.  Chevron and Exxon Mobile announced their quarterly earnings Friday and although they seem to have beat expectations, they fell short of what the stock market deemed to be profitability.  Clearly that is a subjective statement because despite the companies making billions of dollars, their future projections are diminished based on Friday closing pricing in their options.  OPEC+ also announced that they will be ramping up production as time goes forward, which could result in the further depression of oil prices as the summer kicks into gear. What does all this mean for budget conscious consumers as we gear up for the summer driving season, typically when gas prices rise as people take the roads for moving and vacations? 

Well, one of the things you may have noticed at the pump last week is that despite falling oil prices, the price of gasoline went up.  In some cases, it went up a lot – by more than 20 cents on average.  But how could this be since oil prices are falling?  The reason is because although there is a somewhat stronger than average connection between oil prices and gasoline prices, that link is not rock solid, and it does not operate in tandem in a vacuum.  When oil prices fall, gasoline prices sometimes don’t follow in an orderly fashion.  This trend only appears to be true in the opposite direction.  When oil prices rise, gasoline prices rise alongside them.  But gasoline prices also follow a yearly trend and sometimes that is contrary to what logic would dictate.  It has to do with the way gasoline is produced and distributed in the United States. 

The first thing we should take notice of is that this country has not built a refinery station for more than half a century.  The last one opened in the 1970s.  A lot has changed since then.  The refinery capacity of the country is fairly set based on the abilities of the current refineries.  In other words, you cannot increase capacity in a way to offset consumption requirements as they fluctuate higher because there are only so many hours in a day and a week and a month to run the refineries.  You’d have to change time and the laws of physics to significantly increase the capabilities, and they are probably not realistic to wish for.  So, we are stuck with the current availability of production. 

The 2nd issue we have to consider is the amount of production capability versus the demand – which ties into the 1st issue.  The demand by the traveling public increases or decreases throughout the year.   Generally, people in the US live based on a pattern.  That pattern was developed and surrounds the calendar of the school system.  What does that mean?  Basically, when school is in session, unless parents really must, they prefer not to upset their kids’ school system by removing them from the current school they are attending to move to another location.  So, while school is in session, parents generally don’t spend as much on resources for moving as they do when school is not in session.  This also means that while school is in session, parents don’t typically take long travel vacations as they would be inclined to do when the kids are out of school.  This reduces demand for gasoline in the fall and wintertime and it makes prices drop – the exception to this rule is if there is a storm impacted interruption in the Gulf region where the vast majority of refineries are located or if a storm destroys the capabilities of the pipeline companies to move the product around. 

The 3rd reason why prices tend to rise in the summertime and fall in the winter somewhat is the various blend requirements imposed on certain states and the pressure this puts on the system.  Gas Buddy, the tracking website, has a great explanation of why this happens.  (The Difference Between Summer-Blend and Winter-Blend Gasoline)

“…Summer Gasoline

In the warmer months, gasoline has a greater chance of evaporating from your car’s fuel system. This can produce additional smog and increased emissions. Refiners reduce the possibility of gas evaporation in your vehicle during the summer by producing gasoline blends with lower Reid vapor pressure (RVP), or lower volatility. These blends vary from state to state and region to region due to RVP state regulations. They also vary by octane level. Cost for your wallet: According to NACS, this higher-grade fuel can add up to 15¢/gal to the cost of your fill-up. This excludes the increased cost due to summer fuel demand, which can vary between 5¢-15¢/gal, depending on region. More stringent requirements (like California) can mean even higher prices.

❄️ Winter Gasoline

In winter, gasoline blends have a higher Reid vapor pressure, meaning they evaporate more quickly and allow gasoline to ignite more easily to start your car in cold temperatures. This blend is cheaper to produce, resulting in lower gas prices at the pump from late September through late April.  Cost for your wallet: Prices typically fall 10¢-30¢/gal starting in mid/late September through late November as gas stations switch to winter gasoline and demand for gasoline falls seasonally as we start staying closer to home. Many retailers continue to sell summer gas until their inventories run out before selling winter gasoline. Hurricane season can also affect prices, ending in a squeeze just before the switch as refiners don’t want excess expensive summer gasoline sitting around especially if refineries are in the path of a major storm.”

So, as you attempt to update your weekly budget going forward, and you are watching the oil markets or the news thinking gas prices should subside somewhat because oil prices are down, you may want to rework that thinking process.  It would be wise to consider increasing your summer driving costs to ensure that you are not falling short in your savings or budgetary projections.  If it turns out that 2025 is an exception to the last 50 years, the worst that can happen is you end up with more money in your budget that you can transfer into your savings account but if the trend continues as it has been for the past 50+ years, and you budget based on your projection of falling gasoline prices, you could wind up with a gap in your budget that will be difficult to fill as time goes on. 

Either budget more money for gas or cut back on the trips you take.  That way you are not caught with a budgetary shortfall. 

PS. You can't just stock up on gasoline like paper towels. So, the next best thing to do is to be smart about how you are preparing for the upcoming season. Ensure you have a sufficient amount of funds ready to spend on whatever gasoline you need on a weekly basis and if possible, prepare to set aside a specific amount every week or month to prepare for an increase in pricing - or if you live on the Gulf coast - ensure you are preparing for the upcoming hurricane season. Experts are predicting a higher than average named storms. Last year Tampa Bay barely escaped a direct hit, the outlying areas of St. Pete Beach, Indian Rocks, etc. were not spared. So, prepare financially for what is supposed to be a higher than stress full season and just take steps now to ensure you are ready.