Average gas prices fell below the all important psychological mark of $4 a gallon today, according to AAA. Prices have fallen for 58 days in a row now, giving consumers some much needed breathing room.

“Americans today will spend nearly $400 million less on gasoline than they did in mid-June,” said a GasBuddy blog early this week. The GasBuddy app helps customers find the lowest-cost pumps near them. Gas prices peaked at over $5 in mid-June, with customers in some parts of the country paying as much as $6.43 per gallon.

Why are gas prices falling?
Gas prices are the lowest they’ve been since March, mainly because of increased supply and reduced demand. On the one hand, the government is releasing oil from its Strategic Petroleum Reserve. This means that there’s more oil flowing, which in turn pushes prices down.

At the same time, there’s a reduction in demand. Americans are cutting down on gas consumption in a number of ways. In a survey by AAA, almost two-thirds of respondents said they’d changed their habits to use less gas. Driving less and combining errands were the top ways people handled high gas costs.

Finally, global crude oil prices are falling. Prices initially shot up following Russia’s invasion of Ukraine, but in recent months they’ve come back again. The price of crude oil accounts for almost half the price people pay in gas stations.

Is the worst over?
It’s too early to say. GasBuddy’s Head of Petroleum Patrick De Haan thinks prices will continue to decline for a few more weeks at least. But there are several factors that could still reverse the downward trend.

First up, it’s hurricane season. If severe weather conditions hit the Gulf of Mexico (where a large amount of petroleum refineries are located), we’ll see a reduction in supply and a corresponding increase in prices. Given that many refineries are operating at close to full capacity, there isn’t a lot of room for even small hiccups.

Plus demand could increase both in the U.S. and internationally. High prices caused Americans to ease up on the gas, but that may not last if prices continue to fall. Plus, economic activity in China has been muted recently, but this won’t last forever.

Finally, the Russia-Ukraine crisis continues to have an impact, particularly as economic sanctions affect prices. European countries are facing dramatic increases in their energy bills and there are a lot of questions about what might happen before winter.

What it means for consumers
As consumers, the best course of action is to hope prices stay low but plan for possible increases. There are several ways to reduce your gas consumption, some of which a lot of Americans have already adopted. Here are a few you might not have considered:

  • Inflate your tires. Inflating your tires can reduce your gas consumption, as can regular maintenance. The U.S. The Department of Energy also says that each 5 mph you drive over 50 mph is like paying an additional $0.29 per gallon for gas.
  • Shop around for the best prices. Squeeze every cent out of your petrol purchase by looking for the cheapest gas stations near you. Apps like GasBuddy and AAA can help.
  • Collect rewards on your gas spending. You may be able to earn rewards with a gas credit card or a gas rewards app. This can help to slightly offset the high prices.
  • Try carpooling or using public transportation. Not only will you reduce your gas costs, it’s better for the environment too. You might also look for ways to offset your costs.

The difficulty is that if prices do go back up, it won’t only impact the price you pay at the pump. Gas prices also impact the price we pay for groceries, and wider cost of living. If you don’t already have an emergency fund, now’s a good time to put some cash aside. Having a financial cushion in the form of extra cash in your savings account could help if prices start to increase again.

— Emma Newbery

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Source: The Motley Fool