Wes Moss: Will gas hit $8 per gallon?

Wes_Moss-for-Web-smaller-fiCertified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

The media is having a field day with all of the unrest in Northern Africa and the Middle East. First Tunisia and Egypt, and now unrest has spread to Algeria, Jordan and Libya – home of professional wrestler look-alike Muammar Gaddafi. Didn’t we get rid of that guy in the 80s? Well, the result of all this unrest and what’s affecting you… is the shut down of oil flow from that country, which produces about 3% of the world’s crude.

Less oil coming out of the ground means less supply, which means higher prices. Some analysts are saying oil could hit $220 per barrel – up from $85 earlier this month.

With oil at $85 a barrel you can expect to pay around $3 per gallon at the pump. (I’m not talking about premium here because I never use premium.)

If you can remember the summer of 2008 when gas prices were over $4 per gallon, a barrel of oil was trading hands at around $130/barrel.

So:

$85/barrel of oil = about $3 per gallon of gas

$130/barrel of oil = about $4 per gallon of gas

$220/ per barrel of oil = $7-$8 per gallon of gas (or way more than anyone can afford!)

At what point do you just ride a horse? Will you have to scratch your summer driving trip to Wally World? I don’t think you have to worry about $7 gas just yet and here’s why.

1. OPEC (The Organization of Petroleum Exporting Countries) wants to keep oil around $75 to $85 a barrel. Why? Because when gas prices start hitting $4 a gallon, people stop driving. Just under $100 a barrel is a nice “Goldilocks” price for the sheiks – not to high, not too low.

2. Speculation about oil breaking $200 is based largely on concern about the current unrest spreading to Saudi Arabia, the mother of all oil producers. But the Saudi King is already doling out money to the Saudi people as an insurance policy against political and social unrest. He just announced a $37 billion unemployment and stimulus package designed to keep “the people at bay.”

Another tip: Oil prices will likely continue to rise over time. What’s your best hedge against it? Owning oil stocks and companies that profit from higher oil prices. That way even if you are getting squeezed at the pump, at least your retirement portfolio will be going up. Take a look at State Street’s Energy ETF that holds many of the world’s largest oil companies (XLE).

How high does gas have to go to before you stop driving?

Visit my Facebook page Wes Moss Money Matters to find the chart that shows you the price of gas in relation to oil.

—By Wes Moss, for the Bargain Hunter

(Use our interactive map to find metro Atlanta’s cheapest gas prices.)

35 comments Add your comment

The Beev

February 28th, 2011
12:02 pm

I(f we don’t develop our resources here at home and also take a page out of France’s playbook running their infrastructure 80% on nuclear..(new generation plants actually EATS it’s own plutonium waist) we will be at the mercy of OPEC and the Mid East crisis(es). If we don’t take evasive action and utilize what resources we have…$8 a gallon is not far-fetched. Worst of all, we could get sucked into WWlll.

Ole Guy

February 28th, 2011
2:12 pm

Just exactly what makes the U.S. that much different, in terms of energy costs, from the rest of the world? Many many many countries, all civilized, with running water, indoor toilets, and paved roads which make the crumbling interstate system look like a country road, would view current pump prices with envy. We have become so damn spoiled that we now view cheap energy as a birthright.

The sooner we, as a Nation, come to grips with the realities that we, as a peoples, are no more, or less, deserving of the “good things” in life, the better off we’ll be.I begin every road trip with a bus ride to the train to the plane. Returning to the ATL, it’s reversed. During the public trans portion of these trips, I see such waste and inefficiencies, evidenced by the single-occupant vehicles on the road.

The hard truth is that we should have seen $8/gal gas a long long time ago. Perhaps this would cause the American people to adapt and adjust to the hard realities of the world.

Dose of Reality

February 28th, 2011
3:05 pm

Right On Ole Guy!!! We all need to read the Light’s blogspot and come to grip with the truth….

David

February 28th, 2011
3:08 pm

Hey Ole Guy…the problem is we don’t have to suffer the way other countries do. Most as you would call them civilized countries have high gas and energy prices as a result of extemely high government taxes, not because the market calls for it. I get it you don’t like people having a choice. You want the government to tell people what they can and cannot do. You want to take the bus to the train to the plane? Good for you, it’s your choice, you are free to make that choice. The hard truth is that there is no reason other than government that energy prices need to be artifically high. One more reality. I don’t believe that I need to adapt and change, to adjust to the rest of the world, I think the rest of the world needs to adapt and change to improve themselves, not to take me down with them.

cantondawg

February 28th, 2011
3:24 pm

Ole guy,

Perhaps you would prefer us to have high gas prices where all these single mothers would spend all of their money on gas and not have anything left over to raise their children

SWAT Native

February 28th, 2011
3:27 pm

Just bought a Prius, I’m good. But $8/gallon would hurt anyone.

Free Market supporter

February 28th, 2011
3:43 pm

The problem is not that we haven’t “suffered” enough – what is your problem? The issue is that we do not have a free market in energy. We have been paying likely WAY more than $8 per gallon if you take into account the trillions of dollars we have spent in the middle east subsidizing the big oil companies security costs. Add to that the rampant subsidies for ethanol, coal, and even american oil and nobody could possibly figure out exactly what we are paying for any energy source. Even nuclear is both penalized by the feds with horrendous regulations and then subsidized by socializing the cost of waste disposal.

If we were actually paying what every ounce of energy REALLY cost, who knows how cheap wind, solar, hydrogen, or whatever might be, or how many other sources might have been developed as cheaper alternatives to reality.

Restore the Free Market, end the subsidies and preferential treatment, end all government energy policies (read, government payoffs to friends), and let the chips fall where they may. And while we’re at it, legalize wonderful biomass plants like Hemp so that our country can benefit from this great plant just like every other country can.

Free Market supporter

February 28th, 2011
3:45 pm

What we don’t need is more government social engineering through the use of the tax system. People make better value judgements than politicians, and central planning is a failure everywhere it is tried (including here).

Double Standards

February 28th, 2011
3:45 pm

So here we go again, saying lets be like other countries, but how hard did this state try to fight GaPower adding more nuclear. Oh yeah, forgot about that ? It’s time we get ripped in the backside at the pump again. Can’t afford a new car, any new car that gets better mileage than my current 4-cyl Accord, will cost me a fortune in payments, way more than gas for my Accord. Joy.

Free Market supporter

February 28th, 2011
3:54 pm

And one last thing about oil in the Middle East. IT IS THEIR OIL, NOT OURS. Until we rid this country of that mindset we will never be free, nor safe. If they need to stop what they are doing for a while to get themselves free of their tyrannical dictators and this drives up oil prices, then so be it. I only hope that we as americans will be prepared to take a similar break from our mindless routines to free ourselves should the moment come. In the end, a freer middle east may lead to less corruption, and even better prices for the oil we may need to buy from there. In the mean time, it is their oil and we should respect that.

joe

February 28th, 2011
4:03 pm

We wouldn’t have to put up with this if BO would give the go-ahead to drill in the gulf again…and more importantly drill the Alaskan shell, which would make Alaska the 8th largest oil producer ahead of countries like Nigeria, Venezuela and Libya…not to mention the amount of good industrial jobs this country desperately needs.

FED UP

February 28th, 2011
4:13 pm

right on joe. some people are not rich and get by pay check to pay check and can not afford $8 a gallon and drive 30-60mins to work. it is not a problem for wealthy people who can afford for gas prices to rise. but what about the middle or low income people?

Talladawg

February 28th, 2011
4:16 pm

David and Free Market Supporter (@3:45) – It is called the “Tragedy of the Commons.” If you have not heard of it, look it up. If you have heard of it but you do not see the applicability to your comments, you simply do not understand human nature.

KevinM

February 28th, 2011
4:17 pm

BO forward thinking in protecting America from foreign issues? Not on his agenda despite what polls suggest or what a barrel of oil costs?
No skin off his back…he isn’t paying for anything nor are his confidants.

kevin

February 28th, 2011
4:19 pm

My bicycle gets great gas mileage.

Talladawg

February 28th, 2011
4:21 pm

joe and FED UP – That’s it. Just ignore the real problem of a scarce and diminishing resource. Let your kids and grandkids suffer instead of making a few logical but difficult choices to benefit our country for the long term. Drill, baby, drill is the most ignorant solution to this problem. We cannot drill our way out of this.

Tosh.No

February 28th, 2011
4:32 pm

So does mine Kevin, but I can’t make a trip that takes me 1 hour in the car already on bike…

Dan

February 28th, 2011
4:34 pm

There are alternatives out there, mimicking Europe is surely not one of them. They don’t conserve out of some nobler realization of conservation. They do so because, in there more densely populated countries mass transportation is far more viable, and there roads don’t support high volumes of traffic as universely as ours, and they have had and do have a much bigger polution problem, harkening back to there densly populated continent. Lastly as a group they are far worse off economically, most of the EU has debts relative to there output far in excess of ours (or they did a couple of years ago), not saying we should address issues, just relaying that the european method has proven to be one to avoid not to emulate, as it did 250 yrs ago and a couple of times in the last century

Bill

February 28th, 2011
4:34 pm

I wonder how many of the people whining about high gas prices drive a ginourmous SUV which gets cruddy mileage? I’ve been happily driving a Honda Civic Hybrid since 2003 – I average around 42 MPG.

As Pogeo used to say – “I have seen the enemy, and he is us.”

Bill

February 28th, 2011
4:35 pm

“Pogo” not “Pogeo”!

kevin

February 28th, 2011
4:38 pm

Tosh. No,

I supppose my point is that if you choose to live so far from your workplace, you assume the risk of gas prices rising and thereby increasing commuting costs. Atlanta has one of the worst traffic and air quality in the country and it’s precisely b/c people do not live where they work. In my mind, rising gas prices force people to look to more reasonable, sustainable and sensible ways of living. Carpooling is also an option.

Dan

February 28th, 2011
4:43 pm

Another comment on fuel prices and taxes, if prices go up high enough to create a severe decrease in demand, national defecits will increase due to lower fuel tax revenues, this is going to hurt the EU far worse than the US as they collect far more of those taxes, (at least per capita) their already high defecits, in relation to ours, will get worse.

Dan

February 28th, 2011
4:50 pm

Kevin, there is always a tradeoff, between lower living expenses and commuting costs, and that value or perceived value changes with the market fluctuations for fuel and housing. Actually in Atlanta if is a pretty good deal to live in or near town, tho you get far more house and better schools in the burbs. People in the NYC area commute 3-4 hours a day much on mass transit, because the cost of living is so high there and quite frankly a house 60 miles from NYC would cost about the same as a similar one 10 miles from atlanta .

Dan

February 28th, 2011
4:59 pm

Talladawg, but many have the tendency to ascribe a nobler cause to an eco-movement and controling those individual goals of business, they both need to be at the table, both are comprised of humans with their own agendas, indeed this country has catipulted to a leadership position in the world in nearly every measurable aspect in a historically short time frame, primarily due to looser controls on the free market than the rest of the world, which allows economic natural selection to occur and advances to be made. Rationing, which at the end of the day is what the control of limited resources is, can also be decidely inefficient and in the end waste those resources

kevin

February 28th, 2011
5:02 pm

Dan,

Of course, there are tradeoffs. Though,your house comment is relative–just depends on what you mean by “more house”. Sure, you get more square footage for the money, I would prefer a charming craftsmen bungalow in the city that’s half the size of a newer house in the burbs. And, while their are some troubled schools near the city, there are good ones as well, e.g. Grady, Mary Lin elementary, etc.

“People in NYC are commute 3-4 hours a day…” if true, that has to be a small percentag–those people are nuts and should rethink their situation.

Dan

February 28th, 2011
5:12 pm

Kevin
I am with you on preference of house I live about a mile otp
Also in reference to the schools in our town, those good schools also make the houses more expensive
As for new york, I grew up there, Dad was a cop and we moved about 60 miles out when I was 10 he commuted 1-1.5 each way, difference betweeen a house and an apt (can’t have 6 kids in an apt ;o), still have a brother up there also a cop and while he lives near work, 70 miles from the city, his house is 300K simple bi level, and taxes about 10K and there are loads of full trains going into the city every day, I think they are nuts too, but there are many many thousands thousands who do it. Such things are a big reason people move down here, price, commute weather, all a relative piece of cake

kevin

February 28th, 2011
5:19 pm

Dan,

All good points and well taken. And, my apologies for not proofreading my last post–surprised you could even discern my meaning. :)

mad as hell

February 28th, 2011
5:37 pm

Drill here drill now. It is CRIMINAL for us to be dependent on a group that hates everything about us but our money.

kevin

February 28th, 2011
5:46 pm

Mad as Hell,

Yeah, drilling really worked out well last year in the gulf! Another idea–we can become less dependent on foreign oil sources by reducing the amount of oil we consume via more sensible, green alternatives.

Common Sense

February 28th, 2011
6:05 pm

A fifty cent piece from 1964 would have bought just under 2 gallons of gasoline.

That same fifty cent piece today, worth just under 12 $ today, would buy over 3 gallons.

Shouldn’t you be looking at the inherent value of the currency and not just the commodity? Maybe the problem is not the oil itself.

kevin

February 28th, 2011
6:11 pm

Common Sense,

Aside from saying that saving money, to the extent one is able, is beneficial, I am not sure I see your point.

Rus

February 28th, 2011
6:22 pm

Are we all so dumb as to believe we do not have the capabilities to rid ourselves of crude oil? We can send people to the moon in the same rocket ship, we can mass produce electric cars ( the Nissan Leaf ), we can get energy from the wind and the sun. The real reason we can not rid ourselves of crude oil is simply the economy. The economy of the world would collapse if we did away with gasoline for personal vehicles. We have an electric car that will go what 150mph, the Tesla, Mercedes has a hydrogen car. We may not have these alternative forms of energy perfected to replace gas without some personal issues but if the US government wanted to we could all turn in our gas powered vehicle for a comparitive electric or hydrogen car and watch the rest of the world beg us for handouts. If you look at the countries that have all the oil they also have a ton of sand and little water. Where do they buy thier food from? We could always trade a bushel of wheat for a barrel of oil or a barrel of drinking water for a barrel of oil. I know they can desalinate their water but how bad does that still taste? You want my opinion – legalize marijuana and tax it. Load our C5’s with prisoners and drop them off in Libya as we pick up our soldiers in Afganistan and anywhere else they may be over there. Once we have completed the swap of our prisoners for our soldiers we turn that sand into glass with some bombs. We rid ourselves of a huge tax burden two ways and we can always go drill through glass later. It may be cruel but it is certainly a way to solve the issue.

Common Sense

February 28th, 2011
10:33 pm

Kevin,

It’s not that the oil cost more, it’s that the paper currency we use has been so devalued that they demand more of it as payment.

Gasoline inventories are at 20 year highs. This is NOT about supply and demand.

That’s my point.

Steven

March 1st, 2011
4:32 pm

Kevin

Many commuters who live in New York City itself can have really long commuters. Staten Island with a ferry + bus + subway connection can make it at least an hour to 90 minutes one way. New Jersey Transit, Long Island Railroad and Metro-North Railroad trains are packed to the grills during the rush hour with people commuting 50+ miles away.

Metro-North Railroad has five “super expresses” trains to Beacon (60 miles north of Manhattan) and those trains are packed (all 7 cars with almost every seat ticket) believe it or not. It may crazy, but you can do stuff on a train which you cannot do driving a car.

Ole Guy

March 2nd, 2011
4:28 pm

David and Cantondawg, you are excellent examples of the alarmists who do nothing but create havoc and confusion. It was not too long ago when congressional “leaders” had everyone convinced of certain doom if the financial sectors and the auto industry were denied taxpayer bailout. We all know that these particular sectors WOULD survive if…and ONLY if…they adapted to the realities du jour. We can bitch and complain all day; until we’re blue in the face, but the plain and simple fact remains…WE’VE GOT TO LEARN TO ADAPT TO REALITIES.

Back in the 70s, during a state of the union, President Carter said it best (Like it or not) “You’re (the American taxpayer) going to have to pay more and get less”. It’s that simple, people. Kick scream and cry all you want; paint the alarmist picture of single mothers’ burdens, yell out “THE SKY’S FALLING”! One of my little ways of adapting is to employ public trans, not because I love it, but because it’s one of the long-overdue sacrifices we’re all going to have to acknowledge.

HAVE A GOOD DAY, YALL!