The highways I drove this Memorial Day weekend were relatively empty thanks to people opting for a Staycation. But people I spoke with were wondering why gasoline prices were so high and whether they'll go higher. While USA Today thinks they've peaked, my answer to both questions is I don't know.
But if one source is right that 60% of the trading volume in oil is from speculators, then a rise in the dollar and a drop in consumption would force those speculators to reverse course -- and that would send oil prices plummeting. Here are five things you can do to help make this happen:
- Drive less. Many people don't have the option to do this. But carpooling is an option for many. People can also try to make many stops during a single car trip rather than doing one at a time. And they can try to telecommute more frequently.
- Take public transportation. Much has been written recently about people taking buses, trains, and other forms of public transportation to work. While this is often more time consuming and can be inconvenient. It may also save money and will certainly cut down on your gasoline consumption.
- Ride a bike or use a motorcycle. I know riding a bike would be a major inconvenience for many people. Riding a motorcycle gets better gas mileage than a car and is fun for some. During periods of dry weather these options could work fairly well. But they'd be awfully tough during a snow or rain storm.
- Drive a hybrid. I am not sure what kind of mileage hybrids really get, but Toyota Motor Co.'s (NYSE: TM) Prius gets 45 miles per gallon on the highway, according to fueleconomy.gov. The question is whether the gas savings make it worthwhile for you to ditch your current car and buy a hybrid.
- Ask your boss for a raise to pay for higher gas. Some companies are giving employees extra money to cover their costs for higher gasoline. If you keep track of how much more you are paying for gasoline to commute to work, you could show the numbers to your boss and suggest a raise to cover those higher costs.
Many of these ideas, if widely adopted, would lead to lower gasoline consumption. Since demand for gasoline in India and China is still strong, it's not clear that lower U.S. demand would tip the price down. But no matter what the price of gasoline, the less of it you consume, the more you'll have to spend on other things.
And the last idea would boost inflation even more which might make the Fed raise interest rates -- thus strengthening the dollar and cutting the price of oil.
While it's somewhat satisfying to complain about the high price of gas, it's better to do something about it. What are you doing to save on gasoline?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Toyota securities.
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Reader Comments (Page 1 of 1)
5-28-2008 @ 11:03AM
John said...
The only way to force oil prices to "plummet" is to have a global recession.
Less driving will have a small impact. We are still consuming huge amounts of oil. Conservation can take to to around $115, but only if it's perceived to be a permanent emplacement of conservation - something of which Americans are not known.
Raising interest rates would throw this country into a severe recession. There would eventually be huge layoffs, and those people not driving would get you cheap gas. Interest rates are about where they should be.
High oil prices are good for the country. It's too bad Wall Street can't figure this out. Without them, it means recession. There is no way around it.
5-28-2008 @ 5:50PM
drbrianregan said...
It is simple. This is the new hedge fund bubble. Hedge funds need to make money, big money. They need to speculate. As speculation gains steam, a bubble is formed. As it is formed everyone denies it's very existence. The recent real estate bubble was formed by the financial world. The dot.com was created by the financial world. So when demand hits the short sellers will have to buy back at lower prices and amazing the prices drop and drop. Can China eat up the demand curve yes for a while, but as the USA slows the world slows especially china, Why chins only sells to other countries. Chinese do not buy their own stuff very much they save their cash. So if there exports slow all demand will slow. And then it will be on to the next bubble. Got a guess, try the currency market. You can already here how great the dollar is going to do as Wallsteeters start getting six pack Joe to buy into a new bubble. Good luck
5-28-2008 @ 6:30PM
emily said...
Cutting back on driving seems to be one of the most popular options. We just commissioned a poll, which found out that over half of Americans are cutting back on visits to friends and family: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20080527006417&newsLang=en
Public transportation is great in places like D.C. and NYC, but in places like Austin where all we've got is a crappy bus system and sweltering summer heat that makes biking awful, carpooling and pulling back on driving are the only options. Hopefully more businesses will start offering telecommuting or gas incentives.