Fill ‘er Up!

The impact of lower gasoline prices on small business

 

Over the last six months, the price of gasoline has fallen for a record-setting 109 days in a row. On Monday, January 12, 2015 the national average for a gallon of gasoline in the U.S. stood at $2.13, according to the AAA motor club and leisure travel organization. Six months ago, it was $3.63.

Several reasons come to mind for the fall in retail gasoline prices. 

First, oil producers, from the vertically-integrated ‘supermajors’ like Exxon Mobil, Chevron, BP, and Royal Dutch Shell all the way down to the smaller independents, have been overproducing at a time when demand in slowing. And this overproduction extends in large part to the shale oil and gas boom in Texas, North Dakota, and the Marcellus Shale regions, primarily in Pennsylvania and New York.

Second, during the winter months, many Americans tend to drive less slowing demand for gasoline. As demand falls and refiners continue to maintain production of retail fuels, inventories for crude oil and refined fuels like gasoline, rise. For the week ending January 2, inventories of oil and gasoline surged by almost 1% to 1.149 billion barrels, according to the U.S. Energy Information Administration. This is the highest level ever dating back to 1990. This is clearly bad news for producers but good news for consumers.

So, what will consumers and small businesses do with this extra cash in their wallets?

Past behavior indicates that when gasoline prices fall many consumers and small businesses look to purchase a fuel inefficient SUV like a Chevy Tahoe due to the cargo space thinking that it’s cheaper to fill up. While that may be true now, when gasoline prices rise, and trust me, they will, consumers will once again cut back on driving or small businesses may add fuel surcharges for deliveries since it will cost more to fill up that SUV. And what about hybrid cars and plug-in electrics?

The Associated Press recently ran a price comparison between several types of vehicles and fuel cost to help sort out this dilemma.

Figure 1: Gas Savings for Gasoline and Diesel Powered Engines

Vehicle Fuel Tank Fill-up Cost 6Months Ago Fill-up Cost Now Savings
Chevy Tahoe 26 gallons $94.38 $55.38 $39.00
Ford F-150 23 gallons $83.49 $48.99 $34.50
Dodge Grand Caravan 20 gallons $72.60 $42.60 $30.00
Toyota Camry 17 gallons $61.71 $36.21 $25.50
Honda Fit 10.6 gallons $38.48 $22.58 $15.90
Volkswagen Jetta TDI (diesel) 14.5 gallons $56.41 $43.51 $12.90

Source: Auto company websites, AAA, Department of Energy

 

In analyzing the data in the cost savings column and we assume savings would stay steady for a year, it’s important to keep in mind that these numbers are for one fill-up (one week). Multiply that number by 4 (weeks in a month on average) and then multiply that result by 12 (months in a year), we should arrive at an annual savings amount. For example, when we analyze the Chevy Tahoe data for example, we get the following result:

$39.00 X 4 = $156.00 savings for one month

$156.00 X 12 = $1,872.00 savings for one year

As you can see, that’s almost $2,000 in one year.

 Next page: Cost Savings for Gasoline-Electric Hybrid (Prius) vs. Electric Plug-In (Leaf)