Today the average price of regular unleaded gas in California is $6.32 per gallon

The national average is $4.90 per gallon for regular unleaded.

What’s Up With That?

Will this stop us from camping this year? Why is gas so high?

No, we will continue camping. 

Why gas is so expensive is a complicated matter, which I will delve into towards the end of this post.

We Just Got Back From a 23-Day Camping Trip

This month we had three family events in the Las Vegas area, spread out over three weeks. Instead of three round trip excursions and the added cost of hotel rooms, we decided to combine a camping trip to the family events.

This saved on gas and the total cost of campground fees was $230 with our Interagency Lifetime Senior Pass. 10 bucks a night is cheap.

 

Given that daytime highs were in the 94° to 115° F range, we knew the campground would be nearly empty. Empty campgrounds are the best campgrounds! 

 At What Point is Gas too Expensive to go Camping?

This obviously is depends upon individual circumstances. This is how I approach the dilemma. . . 

When I retired, I set up a 20-year household budget. Based on past expenses, our anticipated fixed income stream, and other factors I created expense categories. Of course I could not predict inflation. During the 5 years prior to retirement, we averaged $358 per month for gasoline. Given that we would no longer be driving to work, but would be camping more often, I set a $400 per month ($4,800 per year) gasoline budget.

In 2020 we bought a new tow vehicle (2020 Ford F-250 Super Duty) and 2021 was the first full year of using it to tow our camper. In 2021 we towed our camper 4,419 miles. Our total gas spend for all our vehicles was $3,553, which was $1,247 under budget. Whoo Hoo!

This year so far (6 months) we have spent $1,740 for fuel. According to the budget, we have $3,060 left for the remainder of the year. So we are in good shape for camping and staying within the budget.

During the first 6 years of retirement, the total budget for gasoline was $28,800 (6 X $4,800 per year). Our actual gasoline expense over this 6-year period was $18,032. We were $10,768 under budget. 

Mentally, I don’t want to pay $6.32 per gallon. Plus, remote locations in California have even higher prices. Along the Highway 395 corridor of the Eastern Sierra Nevada, the average price in Inyo County is $6.52 per gallon. Mono County is at an astronomical $7.29 per gallon! Fortunately when we bought our F-250 we opted for the largest gas tank, a whopping 48 gallon tank. So when we go to the Eastern Sierra later this summer, we will not have to buy gas in Mono County.

What are Other People Doing?

On our last trip the campground was even less busy than on previous June trips. Apparently fewer folks are camping and I will attribute that to gas prices.

My Baseline for Summer Camping Traffic

There is a large US Forest Service campground near June Lake, California named Oh! Ridge Campground. It is located at 7,600 feet elevation and has 143 campsites. For several years the campground has used a reservation system. This is my “baseline” to determine how busy camping in the area is. Since it is fairly remote, people travel several hundred miles to get there. We haven’t camped there in years because it became very crowded thanks to the Internet.

Back in 2020 I checked the Oh! Ridge Campground campsite availability in May for the entire summer of 2020. With a couple exceptions every single campsite was booked 7 days a week from Memorial Day until Labor Day.

In 2021 I went through the same process in May. Again, with a couple exceptions every single campsite was booked 7 days a week from Memorial Day until Labor Day.

Today, I checked and here are how things are looking in August of this year. . .

Lots of available sites, other than weekends when every site is taken. I surmise that people probably aren’t camping as much this summer. 

Why is Gas so Expensive?

Don’t Believe President Biden

It is complicated with many factors. Contrary to what the Republicans are saying, and although I am not a fan of our current president, it isn’t Mr. Biden’s fault. He didn’t cause the problem and he can’t fix it. However he will place blame where it doesn’t belong and he will try to maneuver the citizens to vote Democrat come November by taking ineffective actions to place the current administration in a positive light.

The current situation is purely simple economics. Supply and demand, sprinkled with some oppressive government actions back in 2020 and even earlier.

I spent nearly 30 years in the retail gasoline business. Given my experience here are some things to consider. 

Fixed Expenses and Gross Profit

The last point in the gasoline supply chain is the local gas station. Almost 100% of gas stations in the US are independent dealers who purchase their gasoline from the oil companies or independent distributors. These small businesses are a great example of how the market works.

Every business has “fixed expenses.” These are the expenses that occur every month, quarter, or year. If a business sells nothing during a month or has record sales in a month, these fixed expenses have to be paid. Some examples are rent, property taxes, insurance, utilities, etc.

Back in the late 1990s the gas station I managed had a food store and automotive repair bays staffed by full time automotive technicians. These were additional profit centers along with our gasoline sales. To meet all our fixed expenses we had to generate $15,000 per month in gasoline gross profits. This gross profit is the income derived from gasoline sales minus the money we spent to purchase the gas. To generate this gross profit, I had several options — the retail price per gallon versus the number of gallons sold. For example:

• 100,000 gallons at 15 cents gross profit per gallon = $15,000 gross profit
• 300,000 gallons at 5 cents gross profit per gallon = $15,000 gross profit.

300,000 gallons was the better option because the increase in customers coming into our station would result in more sales from our food mart and repair facilities.

The difficulty would be if people sharply curtailed their purchases. If we could only sell 50,000 gallons per month due to unusual decline in demand, I would have to raise the gross profit to 30 cents per gallon.

Thus the situation gas stations face today. Less demand for gasoline and far less supply. And if a gas station lost money during the height of the COVID Pandemic, today they will try to increase margins to make up for that lost income — especially if they had to borrow money to pay the bills.

Supply and Demand

Back in mid 2020 many state and local governments placed restrictions on business. Many businesses had to close (or partially close) until the pandemic got under control. People were working from home and didn’t need gas to get to work. Demand for gasoline dropped unexpectedly in huge quantities.

Since the demand dropped so much, many refineries were shut down. No need to keep producing gasoline if no one was buying and there was nowhere to store all this excess fuel. Supplies diminished in response to the drastic drop in demand. Gas stations and oil companies suffered economically.

In mid 2021 the economy slowly started to return to some sembelance of normal, with some restrictions removed by governments, then put back into effect as COVID cases decreased and then increased. For an oil company this uncertainty in demand is too hard to anticipate or plan for. If you think that bringing the Abbot Baby Formula Factory back online was too long (2 months plus), bringing a refinery back online is even more expensive and time consuming.

Today there isn’t a shortage of gasoline. There is a shortage of inexpensive gasoline. It is a fact that when gas is cheap, people drive more. They take pleasure trips and some go camping on their vacations. Back in the 1973 OPEC caused gas shortage there wasn’t enough gasoline to meet demand. I managed a gas station back then and it was a complete disaster.

Today there isn’t an incentive for oil companies to significantly up the refining of gasoline, especially when government might place restrictions on business again. Not to mention that politicians are telling these companies they want to shut them down all together and rely on other sources of energy. Among other challenges, the high price of crude oil adds to the higher gasoline prices. 

It’s complicated.

“Exxon Made More Money Than God”

Okay, I’m not a fan of Exxon. I don’t buy their products. But was President Biden correct when he claimed, “Exxon Made More Money Than God,” or is he just another politician trying to get elected at the expense of working people? Let’s consider the following. . .

A key indicator of a business is Net Profit Margin, or the ratio of net profits to revenues. Some industries, such as financial services, banks, insurance, Big Pharma, software, etc. usually have net profit margins at or above 20%. Apple’s net margin over the past ten years has never dropped below 20%.

Auto manufacturers have averaged 7.5% net profit margin over the past five years. Walmart’s has never gone over 4%.

Historically oil company net profits are around 8%. Almost guaranteed they will be around 8 percent, which makes them a good investment over the long term.  This report from 2014 states that nearly half of all oil company shares are owned by retirement plans!

So how is Exxon doing? Check the graphic below:

 

Opps . . . Exxon actually lost money in 4 of the last 6 quarters.

Why is Gas so Expensive in California

From my opening sentences in this post,

California gas prices are $1.42 higher per gallon than the national average. 

At $6.32 per gallon for regular unleaded, California’s average prices are $1.92 higher than those of Georgia ($4.40) and $1.77 higher than Texas ($4.55) — both fairly large states with healthy economies.

The first reason is, that since 1992, California must use a specially formulated gasoline, that no other state is required to use. The gas is expensive to refine and is heavily regulated (e.g., more fees and taxes).

• The people of California did not vote for this regulation.
• The state legislature did not vote for this.
• A state agency, the California Air Resources Board, unilaterally decided for us.

Next, California has the highest gasoline taxes in the country. Part of this is due to mismanagement of gasoline taxes and spending gasoline taxes on things other than road maintenance, causing our roads and bridges to fall into disrepair, and thus an increase in taxes. Mismanagement by government leading to more taxes. We even pay sales tax on our gas, along with the fixed taxes per gallon.

But not all is lost. Our governor (Gavin Newsom) and his political cronies are working to give the people “gas” stimulus checks. The poorest people will get a check for $350. If they pass this, when will we get our checks — why this fall, just before the midterm elections.

The Future

Slowly but surely the price of gas will decline. So go out camping this summer, if you can budget the gas. It is still cheaper than a lot of other activities.