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The last time you were at the pump, you probably noticed the price of gas is creeping skyward. According to the American Automobile Association (AAA), a gallon of unleaded is now averaging $2.95: up 10 percent in the last year and nearly 4 percent in just the last month.
Get used to the idea. As the world economy improves, rising world demand for oil, coupled with a weak dollar, virtually guarantees higher prices. Oil yesterday broke the $90/barrel barrier – the highest it’s been since 2008. And some experts are predicting $100/barrel won’t be far behind.
Just as predictable as higher prices at the pump are the plethora of articles you’ll soon start seeing offering advice to save on gas. As you did the last time prices spiked, you’ll see ideas like “shop around,” “slow down,” or “use a gas credit card that offers rebates.” If they sound familiar, that’s because you got them in 2008.
Last week SmartMoney published an article called 3 New Ways to Save on Gas. But I guess they don’t read their own work, because one of their “new” ideas (buying gas from a warehouse club like Sam’s, Costco or BJ’s) was in an article from June 17, 2009, called 7 Ways to Save on Gas.
To save you from having to surf the web for obvious advice, here’s a condensed version recently culled from popular personal finance sites. After you check these out, I’ll tell you the best way to deal with higher gas prices – really.
The 28 ways to save on gas you already know
- Pay cash (If you get a discount for it – which is rare indeed)
- Fill up at the warehouse club (I know – you told me: twice)
- Shop around (You mean some places have lower prices than others? I never knew that!)
- Slow down (Oh, is that how that works? The slower you go, the less gas you use? Thanks.)
- Take the extra weight out of your car (Good advice – that’s why we gave it years ago.)
- Get a tune-up (See above)
- Get a gas rewards card (See above)
- Get a tire alignment (See above)
- Clean your air filters (See above)
- Check your tire pressure (See above)
- Eliminate jack-rabbit starts (You mean to save gas, I shouldn’t stomp on the peddle?)
- Carpool (this came from an article called 8 New Ways to Save on Gas from U.S. News & World Report in 2008 – but believe it or not, I suggested every one of these tips in a TV news story in 1991)
- Ride a bike (Great idea – unless it’s 4 degrees outside or I’m taking my girlfriend with me)
- Buy a car that gets better mileage (Spend $25,000 to save $5 a month – how ingenious!)
- Use a smart phone app to find nearby low prices (This is a good idea – that’s why we suggested it in 2008)
- Brake the right way (Meaning as little as possible. Here’s an idea: how about disconnecting the brakes entirely!)
- Turn off your air conditioner (You turn off your air conditioner – I live in Florida)
- Close your windows (They are closed: My air conditioner is on)
- Pick a better route (Really? I try to find the longest, most indirect route possible whenever I drive)
- Combine trips (Good common sense – which is why we already knew it)
- Ride the slipstream (better yet – drive onto a car-carrier at a truck stop)
- Target the best time of day to get gas (I’d suggest when the attendant is in the restroom)
- Don’t fill up until you’re empty (I guess that means I should carry a gas can in my trunk?)
- Make sure your gas cap is tight (What…I’m not supposed to leave it on the trunk of my car?)
- Don’t idle (This suggestion was to turn off your car if you’re going to idle for more than 30 seconds. Save $5 on gas – spend $500 on a new starter)
- Don’t use high octane gas unless your car is pinging (That was good advice when I first gave it in 1991)
- Don’t top off your tank (The sticker on the gas pump already told me this)
- Watch traffic ahead of you so you can anticipate slow-downs and avoid stops (this is especially important if you’ve disconnected your brakes)
The one way to deal with higher gas prices you might not have considered
While this way to deal with rising gas prices has probably also been written about before – everything has – I offer it nonetheless: Hedge against higher gas prices by owning a few shares of an oil company’s stock. Not only will your shares likely rise with rising oil and gas prices, added bonus: You might earn a higher interest rate on your savings as well.
If you check out my online portfolio, you’ll note that I bought 300 shares of ConocoPhillips in the spring and summer of 2009 at an average price of about $37/share. So I invested about $11,000 in this stock. It’s now at about $64/share and worth about $8,000 more than I paid. Some of that 70 percent gain undoubtedly comes from the fact that the entire stock market has rebounded nicely since then: The Dow was only at about 8,000 in July of 2009 – it’s 37 percent higher now. But a lot of the gain is probably due to oil prices. When I bought ConocoPhillips, oil was $59 a barrel – now it’s $90.
So the gains I’ve made by owning this stock have more than offset any extra money I’m paying for gas. In addition, ConocoPhillips pays a nice dividend: $2.20/share, which comes out to 3.42 percent at today’s prices. Are you earning 3.4 percent in your savings account? I’m not.
In short, owning an oil company like this one can pay in two ways: The dividend may offer a heck of a lot more interest than your bank, and the stock might be a very effective hedge against rising oil prices.
Are there drawbacks to owning shares in an oil company? Of course. First, while doing things like rolling up your windows or properly inflating your tires cost nothing, buying ConocoPhillips means coming out of pocket to the tune of $64/share. Second, as with all stocks, there are obvious risks involved. While it’s unlikely ConocoPhillips will go belly-up, I just told you it was $37 less than two years ago. There’s no law that says it can’t go there again. Nonetheless, if oil prices do go higher in the weeks and months ahead, it’s highly likely that owning shares in an integrated oil company will be more effective than rolling up your windows.
I’m not particularly touting one oil company over another – if you like the concept, do a little research on your own. To get you started, here’s the page of analysts recommendations re ConocoPhillips.
But humor me – Assume you buy a few shares of ConocoPhillips at today’s price of $64/share. If gas prices go up, see if it goes up with them.
And even if you hate my idea to defend against higher pump prices, at least give me credit for not serving up 20-year-old tips and calling them “new”.