Pump it up: Why gas prices could rise again

Welcome to MoneyNerd!

Rick here. Let’s talk about the price of gas. Yes, again.

The good news: After peaking above $4.50 in June, the national average for a gallon of regular gas has slid below $3.80 (as of July 8). 

The not-so-good news: That’s still well above the average price of about $3 back in February — just before the U.S. and Israel first launched attacks on Iran.

The really troubling news: Prices are not likely to drop more soon, and could even rise.

The main reason? War. Actually, make that wars plural.

The U.S. and Iran signed a deal June 17 that was supposed to enable a new 60-day ceasefire and the return of shipping to the contested Strait of Hormuz. The ceasefire has been shaky at times — too much firing, not enough ceasing — but oil prices still eased, and pump prices followed them downward.

Things got shakier this week after Iran attacked shipping vessels on Tuesday and the U.S. retaliated with missile strikes on Iranian ports Wednesday. Also on Wednesday: President Donald Trump declared the Iran deal “over” in a press conference. 

The immediate result? Oil prices, which had fallen last week to pre-war levels, shot up again this week — and if that holds, gas prices will rise again.

The other war that’s affecting energy prices: The continuing Russia/Ukraine conflict. On Tuesday, Ukrainian drones struck Russia’s largest oil refinery, in Siberia, as part of an escalating campaign against Russian oil infrastructure. And that ultimately affects world oil supply.

In this week’s MoneyNerd, data studies producer Kurt Woock shows how elevated gas prices affect drivers differently — depending on a variety of factors, not just the pump price.

Also this week: 

When gas prices skyrocket, it might be comforting to look at photos and news footage of stations in other states (like California — over $6 a gallon in May, and still well above $5) and feel momentarily better about your own situation. But states with the highest gas prices aren’t necessarily where price spikes hurt the most. Here’s what matters more: how much gas you actually use, and how much prices rise.

Gas consumption varies

The amount of gas you buy depends on a few factors, like the car you drive and how far you go. The more miles you drive and the less efficient your car is, the more gas you’ll end up buying. Drivers who buy the most gas are most exposed when prices rise.

The extra consumption amplifies the change in price. For example, let’s say driver A goes through 10 gallons of gas in a week, and driver B consumes 20 gallons. A $1 increase in the price of gas equals another $40 a month for A, and an extra $80 for B.

Prices rise unevenly

Consider how prices in Montana and Washington changed after gas prices spiked this spring:

Washington has higher gas prices — it’s not even close. Washington’s prices before prices rose were still higher than Montana’s prices after prices rose. But Montana had a bigger change in price. 

Putting it all together

A new NerdWallet analysis of these different variables in all 50 states showed that drivers in Wyoming, Oklahoma, Montana and Utah were hit hardest by recent price increases. 

Yes, drivers in other states may pay more overall, but the bigger change in spending is an important callout. Whether you live in a place where prices are historically high or historically low, you’ve hopefully had time to build that somewhat predictable reality into your budget. A sudden rise in expenses, however, can be hard to deal with, especially if money is tight.

What to do about it

The takeaway of this analysis isn’t to “tsk tsk” pickup truck drivers or to scold those who have a long commute. Instead, it’s a reminder to think about resiliency when creating a financial plan. If gas suddenly costs an extra $80 per month, can you afford it? An emergency fund can absorb surprises like those. When buying a vehicle, is the cost of ownership — which includes the cost of gas — a consideration?

Wherever you live, whatever you drive, your budget will sometimes be tested. While you can’t always prevent surprise spending, you can take steps to prepare for it. (Consider the 50/30/20 budget as a good starting point.)

Seeing a lot of high-end travel turn up in your social media feeds? We’ve got tips on how to embrace the joy of missing out — by focusing on what floats your boat without sinking your budget. Click to watch!

- Anna Helhoski, senior news writer

Stocks had a banner Q2 as chipmakers continue to lead the market and enthusiasm around AI remains strong. But with elevated valuations, continuing geopolitical uncertainty and concerns about how long the rally can last, it's fair to ask whether any warning signs are beginning to emerge. I spoke with NerdWallet investing writer Sam Taube about what everyday investors should be watching.

Anna Helhoski: Are we still in a healthy bull market, or are we starting to see signs of a bubble?

Sam Taube: The short answer is that stock market valuations are a little high, but not drastically so. The S&P 500’s price-to-earnings ratio is a little above its long-term high, but it’s not ludicrous.

What makes these high valuations a little bit more concerning is that interest rates are also high (and potentially rising in the future).

AH: How valid are the concerns that this market could be in a bubble?

ST: I wanna address the AI-generated elephant in the room, which is the idea that there’s an AI bubble. There is a “vibes” argument for it. Late last year, we polled more than a dozen economists about this question and a significant majority said, yes, it feels like there’s a bubble in AI investments. Many said that the current climate — where AI is all over the news and venture capitalists are throwing so much money into it and it’s being shoehorned into every product — kinda reminds them of the dot-com bubble in the late ’90s.

But when it comes to the numbers from the big tech companies that have gotten rich on AI, it’s actually surprisingly hard to back up the bubble theory.

Read the full Q&A with Sam Taube.

Senior news writer Anna Helhoski is joined by mortgage writers Abby Badach Doyle and Kate Wood to unpack the 21st Century ROAD to Housing Act. It’s a nearly 400-page bill designed to ease the national housing shortage by cutting federal red tape around permitting, expanding small-dollar mortgages, limiting large institutional investors from buying more single-family homes, and creating incentives — not mandates — for local governments to build more housing, including manufactured homes and accessory dwelling units.

Also: Hosts Sean Pyles, CFP©, and Elizabeth Ayoola explore whether a credit card payment plan beats buy now, pay later.

Your MoneyNerd team: Courtney Neidel, Anna Helhoski, Rick VanderKnyff.

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