How to Cope With Rising Gas Prices

Gasoline prices
Gasoline prices

On Dec. 17, Tom Kloza, chief oil analyst for Oil Price Information Service, wrote on his blog that "we have never, ever celebrated Christmas day with U.S. gasoline prices at $3 a gallon or higher."

All of that changed a few days later, when the national average hit $3.01 two days before Christmas and just in time to pluck a few more dollars out of the wallets of holiday travelers. Kloza tells me that we started 2011 with the highest gas prices ever for January, which doesn't bode well for the coming months. Still, the sky isn't falling.

"There's a lot of hyperbole out there, with $4 and $5 numbers. Will you see $4 a gallon by summer? Sure, if you return the rental car unfilled and they charge you that ridiculous price for gas. But generally, we're in the second-highest price environment ever, and I think $3.50 and $3.75 will be the top."

Even so, that's a lot of money to fill our gas tanks. Kloza says a peak of $3.75 a gallon would equate to about $1.4 billion a day, a lot of cash to get from point A to point B. Here's how the impact will translate to your wallet -- and your investments:

Return to Cost-Cutting Mode. Certain thresholds cause consumers to start changing their behavior, says Kloza. When gas is over $3 a gallon, we start to think someone is taking advantage of us. We cut back on our discretionary driving a little. But when it hits $3.40 or $3.50 a gallon, we make real changes. In 2008, we carpooled, took public transportation more and used websites like to find the cheapest gas prices on our commute.

When gas prices dropped, use of some of these cost-saving measures did, too. It's time to bring them back. Find a buddy to commute to work with -- or consolidate your commute with your spouse's. If that's feasible, you can cut your gas costs significantly. To figure out exactly how much you could save, plug a few quick details into If you can take a bus or train, you'll save even more (yes, New York, even with last week's fare increases).

Finally, try to brainstorm other ways you can save. I like to combine my trips, so I hit the pharmacy and grocery store on the way to pick up my kids from practice. If you live in a bike-friendly area -- and most cities are getting more bikeable all the time -- pedaling more might be a good option.

Expect Higher Prices All Around.
The cost of crude oil has a trickle-down effect. It hits gas prices, but it also raises diesel and jet-fuel prices. "Those numbers can really infiltrate every nook and cranny of the economy -- pretty much everything in the country. If it moves by rail, it's very diesel-dependent, and if it moves by truck, it's entirely diesel-dependent," says Kloza. Higher energy prices also translate into higher packaging costs. That means we might be paying more at the supermarket, the mall, the take-out place and, of course, the airport.

Brands May Suffer.
If you're investing in companies that are taking crude oil out of the ground right now, you're likely doing quite well, and that trend will continue. Kloza says with prices over $90 a barrel, you also have a huge safety net: "The price of bringing crude oil to the market varies from $1.50 a barrel to maybe $60 a barrel. So there are tremendous profits being made on the crude oil side. On the refining side, it's spotty, but much better than anticipated."

What does tend to get hurt by higher gas prices? "People still need to get fuel, but what happens is other retail companies and restaurants, those are the ones that get threatened by higher prices. If you make branded merchandise, you can feel that pain, and that's what we saw happen in 2008," he explains. The same, of course, goes for the makers of gas-guzzling vehicles like SUVs. So, companies in those categories could see their stock prices suffer.