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U.S. drivers cut back on gasoline consumption


The highly improbable may be happening. U.S. gasoline consumption may be arcing downward, The Wall Street Journal reported Monday (subscription required).

Confronted with near-record gasoline prices, an anemic-growth U.S. economy, and rising food costs, among other living expense increases, U.S. gasoline consumption has fallen about 1.1% in the past six weeks, on a year-over-year basis, The Journal reported Monday, citing U.S. Government data. Further, excluding Hurricane Katrina in 2005, which destroyed energy facilities, the six-week drop in demand is the longest drop in 16 years.

If the 'mini' trend strengthens or at least holds on a year-over-year basis, experts say it will limit gasoline price increases that typically occur during the summer driving season - - a period when U.S. gasoline consumption historically increases and oil companies increase gasoline prices to take advantage of that higher demand.




The oil factor

Oil's surge over $100 per barrel has already added about 10-15 cents to the national average price for unleaded gasoline, which stood at $3.13 per gallon as of February 25, 2008, according to the U.S. Energy Information Administration. The national average in Feb. 2007 was about $2.40 per gallon.

Absent a cutback in demand, energy analysts and travel experts expect the national average price for unleaded regular to hit $3.75-$4.00 per gallon this summer. As noted, due to seasonal factors, some price increase is inevitable. The unresolved question for consumers and energy analysts alike is whether reduced consumption will persist, and prevent a very large gasoline price increase this summer.

Limited U.S. refinery system


Further, the U.S. Energy Information Administration, among other industry groups, has underscored that reduced gasoline consumption is key to limiting gasoline price increases, due to the U.S's barely-adequate refinery system. The current system can add only modest amounts of production in the summer, and it will be at least three to four more years before new refineries under construction will receive regulatory approval for operation.

Further, analysts are careful not to predict that "demand destruction" will occur until they receive months of data, because attempting to predict the latter has proven to be a remarkably inexact science. Analysts had thought $3 per gallon gasoline would reduce U.S. demand. It did not, The Journal reported.

Economic Analysis: While underscoring that we won't know for months whether the reduced gasoline consumption statistics stem from per capita cutbacks, or just do to the economic slowdown (fewer people working leads to fewer people driving, etc.), a reduction in U.S. gasoline consumption, in general, is a positive trend. Sustained lower gasoline consumption will take pressure off prices, lower the trade deficit and free-up dollars for other uses, including saving/investing.

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Last updated: May 16, 2008: 01:49 PM

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