According to a survey from the price comparison app GasBuddy, the national average for a gallon of gasoline in the United States is expected to cost $3.49 in 2023. This is a fall of over 50 cents from the 2022 average of $3.96 per gallon. 

However, even if this forecast comes true, 2023 would still be the second most expensive year for gasoline prices in the last ten years. So, while such a drop in prices would be an improvement, things may still be tight for businesses that rely strongly on gasoline.

The circumstances of the global economy, the demand for crude oil and gas, the operations of refineries and pipelines, government restrictions on fuel mixes, taxes, and the state of geopolitical affairs are all variables that are currently influencing the price of gasoline in the United States.

Changes in these variables can result in significant shifts in the price of gasoline. Recently, prices have been letting up a little. For example, the price of a gallon of gasoline is now more than $1.80 less expensive than it was in June, which was when it hit a record high of just over $5 a gallon.

What Impact Could a Recession Have on the Price of Gasoline?

According to projections made by James Williams, an energy economist at WTRG Economics, the fuel prices of a gallon of gasoline will remain relatively stable during the course of this year, hovering at around $3.20. 

However, he warns that it is difficult to forecast future gas costs since oil prices have a history of being highly unpredictable.

The most important question that has to be answered is whether there will be a recession this year. Williams asserts that if this were to occur, it would presumably drive prices toward the lower end.

On the other side, according to GasBuddy’s research, if the new year 2023 turns out to be a year with stronger economic growth than was anticipated, this might lead to an increase in both demand and prices.

The price of a gallon of gasoline is approximately determined by the price of oil, which accounts for around 55% of the total cost. 

According to Williams, there is typically a change of around 25 cents in the price of gas for every $10 change in the price of oil. According to the West Texas Intermediate measure and energy information administration, which is a standard that is often used by experts, the price of a barrel of oil was trading at roughly $80 on Monday.

The invasion of Ukraine by Russia was a major contributor to the sharp increase in natural gas prices and oil prices that occurred throughout the winter and autumn of the previous year. At its highest point in June, the price of a barrel of oil was around $120. 

At the beginning of the conflict, there was significant anxiety over the effect that the war might have on oil supplies across the world. Even though Western nations have adopted sanctions, the penalties haven’t produced the disruptions to oil prices that some expected they would since other countries are continuing to buy up Russian exports. This is due to the fact that other countries are continuing to purchase Russian exports.

According to Williams, instead of selling oil and goods to Europe, Russia is selling them to India, China, and some other nations in Asia, and in doing so, it is virtually disregarding the $60 price ceiling that has been talked about.

In addition to the effects of the conflict, production choices made by the group of oil-producing nations known as OPEC+ are also likely to have an influence on pricing in the next year. 

In addition, those interested in oil prices are keeping a careful eye on the COVID-19 situation in China. There has been some progress made in reopening the nation, but the number of viral cases has increased recently. 

According to Williams, if this leads to more limits, China’s demand for oil may decline, which would, in turn, put downward pressure on prices.

The Price May Rise Up to $4 in 2023

In spite of the positive prognosis, many businesses and drivers, in general, may expect to spend more on gasoline during 2023.

According to GasBuddy, the price of gasoline might go beyond $5 per gallon in a number of major cities, including numerous locations on the West Coast. According to their analysis, San Francisco, Los Angeles, Sacramento, and Seattle will be the locations where peak daily average rates will be the highest.

In a tweet, Tom Kloza, an energy analyst at the Oil Price Information Service, said that motorists in some states should prepare to pay a higher amount in gas taxes in the year 2023. 

On January 1, some gas taxes that had been suspended by the state of New York were reinstated, and this year Illinois, Pennsylvania, and North Carolina will all be increasing their gas taxes.

As is customary, seasonal patterns will have an effect on the price of gasoline. According to projections made by GasBuddy, the price of a gallon of gas will rise over the summer, which is often the busiest driving season, and will hit a national average of $3.99 in June. 

On the other hand, it’s possible that drivers will have an easier time during the winter months when the amount of driving Americans are doing falls.

What Measures can be taken by the United States and its Allies?

It is possible for nations like the United States, Japan, and European countries to release more petroleum from their strategic reserves. These sorts of actions could be helpful, particularly in the event that a crisis is just temporary. 

However, in the event that Russian oil supplies continue to be disrupted for a period of months or years, the stockpiles will not be sufficient.

If Russia is unable or unwilling to maintain its oil supply to the west, western oil corporations may be able to ramp up production if they feel that the additional demand they can satisfy from consumers will be long-term as opposed to short-term. 

They would have significant financial incentives, in the form of rising oil prices, to drill new wells if those prices continued to rise. Having said that, it would take such companies many months to begin increasing their output.

What is OPEC Doing?

Even though several members of the Organization of the Petroleum Exporting Countries (OPEC) have been falling short of their monthly production quotas, and some of them may not have the capacity to quickly increase output, President Biden has been urging the Organization of the Petroleum Exporting Countries to pump more oil.

At the beginning of January, members of OPEC and its allies, including Russia, reached an agreement to adhere to a plan that calls for raising output by a relatively modest 400,000 barrels per day beginning in February.

In addition, if there is an unexpected drop in supply from Russia, it is possible that the United States government could exert pressure on Saudi Arabia to increase production independently of the cartel. The monarchy is believed to have several million barrels of spare capacity, which it might use in an emergency situation, according to analysts.

What Kind of Effects will Increasing Oil Prices have on the Economy of the United States?

A significant increase in the price of oil would lead to an increase in the cost of gasoline, which would be detrimental to consumers. Because working-class people and rural residents are more likely to be drivers, they would suffer the greatest impact. They also drive more antiquated automobiles that have worse overall gas mileage. With regards to business, businesses that rely heavily on driving will be the most impacted. This may force them to raise prices on customers, causing a decrease in demand for their services and potentially a drop in revenue (though not necessarily).

However, the direct impact on the economy of the nation would be less severe than in previous decades. This is due to the fact that the United States now produces more oil domestically and imports less oil than it did prior to 2010 when hydraulic fracturing caused an explosion in drilling in shale fields.

The United States is today considered to be a net exporter of fossil fuels, and the economy of a number of states, most notably Texas and Louisiana, have the potential to gain from increases in price. This can help offset some of the damages caused to the overall economy by rising oil prices since there are aspects of the American economy that can benefit from the higher oil prices.

What Should Business Owners Do to Survive in these Conditions?

The gas costs had begun to fall as last summer came to a close. However, there is no guarantee that this trend will continue. Following are five ways that small businesses and companies may counteract the rising cost of gasoline by saving money at the pump and in other places:

1. Receive a Rebate When you Fill Up your Gas Tank

Applying for business gas credit cards, which may provide up to 3% cash back on gasoline purchases, is something that smaller companies who spend a significant amount of money on fuel expenditures should consider doing.

Along with gas applications, which help customers locate the lowest-priced gas in their region, these cards may also be used in conjunction with station-specific membership accounts, which offer customers points or discounts.

2. Keep Track of How the Changes in Your Cost of Goods Sold Affect You

The term “cost of goods sold,” or COGS, refers to the sum total of a company’s expenditures that are immediately connected to the selling of products or services. It has a significant impact on a company’s bottom line.

In order for a company to produce a profit, the company’s sales have to be higher than its cost of goods sold.

When the cost of items supplied rises, owners of small businesses are unable to continue operating their companies in the same manner. When calculating the cost of products sold, service and product-based firms often include the amount of money spent on gasoline in their calculations.

The profit and loss report, which is commonly referred to as the income statement, is included in the majority of accounting software systems for small businesses. Within this report, you will see your cost of goods sold.

Are rising gas prices impacting your COGS? If so, how? Do you need to raise prices? Do you need to stop offering certain services or products? Do you need to start servicing a smaller area to reduce travel costs? These are all questions that can be made simpler if you are monitoring your COGS data.

3. Determine When it is Appropriate to Boost Your Rates

Small businesses run the danger of going out of business if they do not increase their pricing in response to the effects of rising gas on their operations. This price increase should be explicitly noted in invoices for service-based enterprises so that clients are aware of the rationale for the increased cost of the service. This will ensure that they understand why prices are going up and have an explanation.

To be more particular, owners of businesses should set up a sub-account under the expenditures section for the cost of gas. This will allow them to identify and track the precise amount of money spent on gasoline.

Moreover, companies evaluate their contracts with customers to verify that they have the ability to implement pricing increases. You want to make sure that implementing a price increase will not significantly curtail your revenues on account of losing customers. So it is important to be cautious and do your due diligence whenever you are considering a price increase.

4. Devote Some of Your Efforts to Financial Projections

Financial forecasting assists companies in establishing objectives and estimating their potential future profit and supply chain needs. As a result, financial forecasting may put small enterprises in a position where they are able to make choices before prices increase, potentially enabling them to stock up on inventory they know they will need in the coming months earlier than usual. If you are confident that the prices now are lower than they

In the event that the accounting software you use does not feature forecasting capabilities, many nonprofit groups provide consulting services to small businesses and also provide free templates on its website. You can also consider working with a certified public accountant (CPA) who has experience working with small businesses to have your financials examined and financial forecasts generated by a professional.

5. Make Your Company More Productive by Improving its Efficiency

Altering other aspects of a small business’s operations may help balance the expense of gasoline. For example, you may consider switching to electric vehicles as a strategy for combating rising gas costs. However, small companies often do not have the option of making the switch to electric vehicles since this is obviously an expensive and time-consuming process. However, the point is that this is a good time to start thinking outside the box and considering ways you can improve your business’s bottom line through innovative thinking.

For instance, examine how the packaging and shipping procedures are carried out. Ask yourself if you have any packaging materials that are less in weight. Maybe your business is able to use smaller containers for shipping products.

Business owners of small companies should also consider looking into methods to improve the long-term energy efficiency of the buildings in which their companies are housed. Moreover, these might also help save money. There are a lot of organizations and programs that are coming to light today, pushing companies to explore those possibilities and motivating them to do so.

Small company owners may identify tax deductions, tax credits, grant programs, and rebates connected to energy in their state by using the Database of State Incentives for Renewables and Efficiency (Database of State Incentives for Renewables and Efficiency). In addition, several of the regional utility providers offer extra incentives to company owners that participate in their small-enterprise energy efficiency programs.

Conclusion

The pandemic has caused many individuals to continue working from home, which has resulted in a price drop and in the number of people traveling to work. However, the demand for leisure travel remains strong. Meanwhile, global events continue to complicate the worldwide supply of oil, particularly in western nations. On the supply side, GasBuddy anticipates an increase in refiners’ capacity in 2023. However, problems that need maintenance might always arise, which would drive up prices. All of these factors combined make it exceedingly difficult to forecast the demand for gasoline in 2023 and its resulting price with certainty.

Thus, at the end of the day, it is not 100% clear whether gas prices will go down or up for small business owners in 2023. However, this does not mean you should not prepare for either possibility. Having a contingency plan and staying ready for anything is what enables businesses to make it through rough times. So, if gas prices are consequential for your business, you should continue to track the latest news on oil prices and expectations in the coming months. By doing so you can try to stay informed and ahead of the curve, enabling your business to react quickly and effectively if necessary to changes in gas prices.

Biz2Credit

Biz2Credit is dedicated to improving outcomes for small businesses and their owners across the nation. As part of this, we maintain our Biz2Credit Blog as one of the go-to sources online for all the latest news on trends impacting small businesses posting new articles every day. So, please continue to check back daily for all the latest content.