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How Long Will the Pain at the Pump Last?

Numerous factors threaten to derail the U.S. economic recovery: The European financial crisis could worsen dramatically, causing a spillover effect in the United States. Businesses, which have added jobs in recent months, could stop hiring. Stock indices, which have been up for most of the year, could again turn south.

[See 8 Ways to Reduce What You Pay at the Pump.]

But one of the most imminent threats to the economy is one that Americans experience each day. Gas prices, which had held steady in the last year, recently shot up. According to AAA, the national average price for a gallon of gas one year ago was $3.71. Now, it's $3.94. In many states, a gallon of gas now costs well above $4. Some experts predict that prices will continue to rise as the summer approaches.

High gas prices eat directly into household budgets. But rising gas prices also affect consumers beyond the home. Spending on other things decreases. People drive less, negatively impacting economic activity. And without increasing economic activity, a broader recovery can't take hold.

Foreign and domestic roots. A series of events--both foreign and domestic--are causing the current gas-price spike. Tensions between Iran and the West have led to an embargo of Iranian oil. If the crisis can't be resolved peacefully, gas prices will continue their upward march.

But according to John Townsend, manager of public and government affairs of AAA Mid-Atlantic's office, events in the United States have also played a role in the spike. "We've had a number of gas refineries shuttered in the last two years, especially around the Philadelphia area and in the Pacific Northwest," Townsend says. "So the refinery problem is primarily affecting the West Coast and the East Coast."

Consumers in states affected by these refinery shutdowns are already paying more than $4 per gallon. The states include Connecticut, New York, Washington, D.C., California, Oregon, and Washington State (consumers in Alaska and Hawaii also pay more than $4 for a gallon of gas, but this is due to the cost of shipping.)

Townsend says consumers in the South and Midwest are more fortunate. Refineries in Texas and in the Gulf region have been steadily producing gas, keeping prices lower in these regions. But relative to prices a year ago, people are paying more for gas.

[See 10 New Retirement Hot Spots.]

Strategies for cutting gas consumption. The best option is to drive a car with good mileage, but Townsend acknowledges that for most Americans, buying a new car just to save money on gas is unrealistic.

Townsend suggests looking for savings elsewhere. He recommends buying groceries in bulk at box stores like Costco or Sam's Club, instead of making repeated trips to the grocery store. He also recommends taking public transportation to work and telecommuting whenever possible.

Short of buying a more fuel-efficient car, the best way to save money on gas is to change driving habits. He says driving the speed limit as opposed to speeding saves gas. Avoiding congestion and jerky steps on the gas or break also saves fuel.

But poor driving habits like these are the hardest to break, Townsend says. "The only way people make these changes is that when prices are going up so rapidly, they have no choice but to change the way they drive," he says.

[See How to Get Free Gas With a Rewards Card.]

Relief ahead? Some experts were predicating gas prices as high as $5 a gallon by the summer. But according to Gregg Laskosi, senior petroleum analyst at GasBuddy.com, a website that tracks gas prices throughout the country, there are signs that prices might be nearing their peak.

"There is government reporting out this week that shows us that we're getting much better refinery output then we have in recent weeks," Laskosi says. "We're also seeing crude oil prices going down ... lower than we seen in quite some time."

"Can we say definitely that prices have peaked? No, but it does seem like we're moving into a period where prices plateau," he adds. "In all probability, it's starting to look like we're approaching a peak."

Laskosi warns that this peak could last quite some time. He says prices should remain close to their current levels throughout the summer. In the fall, he expects prices to go back down. "We could see that plateau for an extended period," Laskosi says. "We're not out of the woods yet."



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