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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Reader Comments (Page 1 of 1)
3-03-2008 @ 5:24PM
Alvin Samuels said...
It was primarily, American technology, American engineers, American tax subsidies that resulted in the development of Middle Eastern oil production capabilitiesl. ARAMCO was nationalized for pennies on the dollar and now we are being goughed with unfair pricing. We need to put more pressure on them to pay their share of defense costs using those excess profits or else produce more oil.
3-03-2008 @ 5:32PM
Alvin Samuels said...
Oil and gas reserves off the Florida and CA coasts are huge. Drilling and Development is virtually risk free. Shale oil reserves are comparable to the Mid East. It is time to allow our Oil industry to do its job.
3-03-2008 @ 6:58PM
sgentilejr said...
Come on folks let's all get real and face reality for a change. "WE THE PEOPLE" have acted as obstructionists for the past 30+ years. WE have prevented nuclear power plants from being built. WE has prevented hydroelectric dams from being built. WE have prevented drilling off the CA, FL and NJ coasts. WE created this problem for OURSELVES...yet "We the people" now try to blame OPEC, ours and foreign governments, oil companies and everyone else for the problems that "WE the people" created for ourselves by always acting as obstructionists.
3-04-2008 @ 12:37AM
Ricky P said...
sgentilejr
We The People Did not prevent all this you stated! Government and Stockbrokers did as the result of oil being a commodity and protecting their interests. That is unless the people you speak of are those owning stock and a member of Washintons Good 'ol Boy System each hand shaking the other.
3-04-2008 @ 5:59AM
paul said...
Nationalize the Oil companies and stand back....
3-04-2008 @ 7:20AM
Michael Schneider said...
The Wall Street Journal article provided an excellent view of the demand decline but there are some factors that are worth noting: 1. The past six weeks, on which the data was based is not really a strong time for gasoline demand-- no big holidays and we are not yet near the summer driving season and 2. It's my feeling that the roads have been much worse this past six weeks than they were last year- just on the basis of the ice and driving conditions. Because of weather changes there have also been more pothole problems due to freezing, melting and refreezing-- in some places these are pretty bad and can be hard on a car so it just makes it a little more inconvenient to head out to the store or a restaurant. These situations have been a bit newsworthy and should be linked to less driving- accounting for at least part of it- especially because the demand drop off is a small percentage. After all, to many people, an icy roads and bad driving conditions are larger barriers to driving than $3 gasoline.
3-04-2008 @ 7:31AM
Rob said...
Screw the oil industry, invest in solar. Revolution is coming!!! It will take one person, one invention to put the enitre Unverse of hope back together.
http://wallastoninvestments.com/tuesday-morning-wallaston-report
3-04-2008 @ 9:05AM
John said...
Fact - people are buying more fuel efficient cars.
And the idiot morons who bought a four-door pickup to drive themselves to work from their idiotic 7,000 square-foot home in some far-off suburb are now pick-up pooling. They're begrudgingly conserving a tad. Butch'n'Bubba ridin' side by side - inside the same cab.
That's the beauty of high prices. It makes perfect idiots smarten up a notch or two.
To get to the widespread existence of intelligent gasoline consumers, gasoline prices need to be much higher.
3-11-2008 @ 4:55AM
mike peters said...
Maybe now the U.S. automakers will get it with fuel efficient cars and commuters will get it with mass transit, walkable cities, etc.
3-11-2008 @ 4:56AM
mike peters said...
Maybe the U.S. automakers will get it with fuel efficient cars and commuters will get it with mass transit, walkable commumities, etc.
3-11-2008 @ 4:02PM
melinainco said...
We all need to look beyond just merely being outraged in response to rising gas prices. I think people should start reflecting on their habits and solutions to the problem. Yes, high gas prices are affecting most of us financially, however, we are dealing with another huge issue related to gas consumption and driving, which is global warming. Though climate change currently may not be directly affecting your finances- it will have devastating effects on all of us and future generations; economically, environmentally, and socially, if we don't start taking action now and modifying habits. More sustainable development patterns can make a huge impact and curb the necessity of driving, and therefore oil consumption. Higher density does not mean forfeiting quality of life. Extraordinarily high gas prices and climate changes-does.