The Reality of Gas Prices: What Are Your Options?

Posted by Tom Sloan - 12/01/11 at 03:01 pm

Consumers often question what impacts the price they pay at the gas pump. Prices fluctuate on a daily, and sometimes hourly, basis with little known rhyme or reason. As gasoline prices have increased more than 95% in the last decade1, companies are beginning to take a closer look at alternative solutions to offset what they are paying at the pump.

Technically speaking, the cost of gasoline is driven by the cost of crude oil and the cost of refined petrol and diesel. Supply and demand is a key factor to the price of gasoline. During the summer and around major holidays, when consumers typically drive more, the per-gallon price of gasoline rises. Natural disasters, such as Hurricane Katrina and the 2010 Deepwater Horizon oil spill also result in gas prices spiking as consumers fear that supply will be inadequate to meet demands. Political, domestic, and international factors may also affect the price of gasoline.

Let’s look at the past few years…

In the summer of 2008, retail gas prices hit an all-time high when consumer costs exceeded $4/gallon for regular-grade gasoline. This was a 29% increase from the 2007 monthly high, and a 140% increase from the 2003 monthly high. At the time, many analysts and consumers speculated that retail prices would continue to grow astronomically and maintain prices around $5/gallon.

However, the onset of the global economic crises in 2008 caused oil prices to sharply decline. In April 2009, the six-month average price of gasoline was $1.92, the lowest average since February 2005 – and prices held under $2.75/gallon until March 2010. As the world economy began to recover and global petro demand grew, prices rose over the course of the year.

Throughout 2010, the average price of regular-grade gasoline grew to $2.83/gallon, with prices reaching $3.00/gallon by the end of December. Annual average prices for diesel were higher than gasoline at $3.24/gallon due to the stronger demand for diesel over gasoline. (FYI: You can track historical pricing of fuel at the GreenKey Fuel Station™.)

…and what’s happening now and for the next couple years

According to the US Energy Information Administration, prices in the coming years should continue to rise. Projected regular-grade gasoline prices are expected to average $3.17/gallon in 2011, with a peak of $3.23 in August. Relief at the gas pump is not expected in 2012, either, with average gasoline prices expected at $3.29/gallon.

So what are your options?

As gas prices grow and remain an unknown commodity, a number of options exist to help companies reduce their fleet operating costs:

Look into alternative-energy vehicles. Diesel has higher fuel efficiency than gasoline, and can save costs despite being higher per gallon than gasoline. In the Volkswagen Jetta, for example, the four-cylinder automatic diesel engine has 37% greater fuel efficiency than the gasoline counterpart.2 Additionally, the price of propane does not fluctuate as seasonally as the price of gasoline.  In the summer of 2011, propane is expected to cost 30% cheaper than gasoline. CNG (compressed natural gas) vehicles are also becoming more prevalent, with more than 100,000 in the United States.3

Trade in gas-guzzling SUVs for sedans. More often than not, similarly priced sedans have significantly better fuel-efficiency than their SUV counterparts. If the cargo room or seating provided by an SUV is a must, there are a number of hybrid SUVs that have recently hit the market. The Ford Escape Hybrid and Mazda Tribute Hybrid both have fuel efficiency ratings over 30 MPG.

If you don’t want to or are unable to downsize or switch to hybrids, talk to your consultant to look at take a look other vehicle options which will meet the needs of your fleet. There are a number of vehicles that get fuel economy ratings similar to hybrids, but are still gasoline-powered. A combined fuel-economy rating exceeding 30 MPG used to be a number only hybrids could achieve, but it’s becoming more commonplace in the gasoline-powered sedan market.

Driving behavior is one of the biggest contributors to fuel efficiency. It’s proven that vehicle idling time, overspeeding, hard acceleration, and quick deceleration all negatively impact fuel efficiency. By training drivers on how to operate their vehicle more efficiently, you can see significant gains to your bottom line. In addition, there are a number of telematics devices to help fleets track the ins and outs of their drivers’ green performance.

Realistic fleet introduction may be a few years off, but keep an eye on the electric vehicle market. The introduction of the Chevy Volt and Nissan Leaf, has caused interest in electric vehicles to hit an all-time high. A number of electric trucks have also hit the road in the past year. For drivers with short, set routes, it may be worth considering an electric vehicle.

While prices continue to rise at the pump, your operating costs don’t have to follow suit. Selecting vehicles with higher fuel-economy ratings, making informed decisions about your vehicle selection, and training drivers to improve fuel efficiency can significantly influence your savings opportunities.

1 http://www.eia.doe.gov/oiaf/forecasting.html
2 http://www.fueleconomy.gov/feg/findacar.htm
3 http://www.iangv.org/tools-resources/statistics.html

2 Responses to “The Reality of Gas Prices: What Are Your Options?”

  1. On the road with Donlen » Blog Archive » Remarketing Update December 2010 says:
    January 14th, 2011 at 12:41 pm

    […] price of gasoline is projected to continue rising (see our take on gas prices and alternative vehicle choices at Donlen GreenKey). Some forecasts are projecting well over $3/per gallon by the end of 2011. Increased demand, […]

  2. Jason Mathers says:
    January 20th, 2011 at 1:46 pm

    Great post, Tom. I couldn’t agree more. There’s a lot that fleets can be doing today to prepare for higher fuel prices in 2012 and beyond. I’ve riffed off your post at: http://blogs.edf.org/innovation/2011/01/20/is-your-company-prepared-for-5-gallon-gas/

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