Gas Prices in the News

First let’s check a few gas price projections for accuracy and then think about the real impact of those relatively small changes that so often make the news.

I happened upon this report about gas prices for the Washington, DC area – “AAA: Gas prices projected to rise this summer.”  This report was dated April 2, and they were saying, “AAA Mid-Atlantic estimates that prices at the pump this summer could rise 40 cents or more per gallon.”  The spokesperson from AAA gave a number of reasons for the prediction and concluded:  “We may be looking at $2.60, $2.65, $2.70 by Memorial Day.”  He added that by the Fourth of July $2.80 was possible, but $3.00 was unlikely.

Fast forward to the first day of summer.  This comes from the AAA website showing gasprices for Washington, DC:  Current average price = $2.479.  Average for the last month was $2.537.  It came close, but never hit $2.60, not to mention the $2.70 by Memorial Day.  But those headlines can sure get your attention!

Now on July 3, the AAA site for Washington, DC lists the current average price at $2.46.  What happened to $2.80?

Don’t blame the AAA.  One of my economics teachers used to say, “If you could accurately predict interest rates, you would never have to work another day in your life.”  The same can be said about gas prices.

Meanwhile, the headline from a June 13 issue of Time-Money article reads:  “Gas Prices Are at Historic Lows. Take Advantage With One of These Inspiring Road Trips.”  They point out:  “According to AAA, the average price for a gallon of regular gasoline is $2.33 nationally. That's about 5 cents cheaper than this time last year.”  Because the price is below last year and the lowest since 2005, they recommend a number of road trip options.

How is five cents per gallon enough to justify a road trip?  At that difference a road tripper would be saving $5 for every 100 gallons of gasoline purchased.  With an average efficiency for a small SUV of about 20 MPG, 100 gallons would take you 2000 miles.  Without stopping to see many sights the trip would take at least 4 days.  A $5 savings isn’t exactly going to last very long?

The same article lists other states with more significant predicted price drops of 13 cents to 25 cents in Ohio, Michigan, Kentucky, Indiana, and Illinois, but that’s still only about three to five times the miniscule average savings, and to enjoy that savings you must limit your 2000-mile trip to the Midwest.  (Note:  Effective July 1, Indiana raised the gas tax by 10 cents.)

This is not intended to poop anyone’s summer party plans or put a damper on a fun family road trip.  But do it only if you can afford it without counting on a few cents of savings at the pump.

According to some polls, about 40% will skip the summer vacation because they can’t afford it (the smart ones), while about 20% of those taking vacation will go into debt to do so.  You certainly can’t depend on the price drop at the pump to finance it.  And remember, those predictions are not exactly reliable in the first place.