Americans Curbing Thirst for Gasoline

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March 5, 2008 by   - () Leave a Comment

As crude-oil prices climb to historic highs, steep gasoline prices and the weak economy are beginning to curb Americans' gas-guzzling ways, according to a report in the Wall Street Journal.
In the past six weeks, the nation's gasoline consumption has fallen by an average 1.1% from year-earlier levels, according to weekly government data.
That's the most sustained drop in demand in at least 16 years, except for the declines that followed Hurricane Katrina in 2005, which temporarily knocked out a big chunk of the U.S. gasoline supply system.
This time, however, there is evidence that Americans are changing their driving habits and lifestyles in ways that could lead to a long-term slowdown in their gasoline consumption.
As supplies have outstripped demand, gasoline inventories have been on the rise for the past four months, reaching their highest levels since February 1994. Yet, in a sign of the growing disconnect between demand and the market, prices at the pump are being driven higher by a powerful rally in crude oil.
If oil prices pull gasoline higher in the current economic climate, Americans are likely to pare back consumption even more, which should help at least damp the rise in prices as refiners build up a safety margin against fears of supply disruptions, experts say.
Of course, if the economy perks up, gasoline consumption could rise again. After softening between 1989 and 1991 as U.S. economic growth slowed, gasoline demand started to recover in 1992 and continued to expand until 2007, according to the U.S. Energy Information Administration. However, economists and industry executives say demand would be likely to grow at a slower pace than in the past as Americans gradually become more fuel-efficient.
According to the Journal, economists and policy makers have puzzled for years over what it would take to curb Americans' ravenous appetite for fossil fuels. Now they appear to be getting an answer: sustained pain.
Over the past five years, the climb in gasoline prices, driven largely by the run-up in crude oil, hardly seemed to dent the nation's growing thirst for the fuel. Conventional thinking held that consumption would begin to taper off when gasoline hit $3 a gallon.
But $3 came and went in September 2005, and gasoline demand didn't flinch. Consumers complained about the cost of filling their tanks, pinched pennies by shopping at Wal-Mart, and kept driving.
But now it appears pump prices have passed the threshold, as consumers are applying the brakes.
"If you think about the fact that U.S. motorists are responsible for one out of nine barrels of oil consumed in the world…and that consumption is no longer growing the way it used to, that's a major structural change in the market," said Adam Robinson, analyst with Lehman Brothers.
As consumers make major spending decisions, such as where to live and what kind of vehicle to drive, they are beginning to factor in the cost of fuel. Some are choosing smaller cars or hybrids, or are moving closer to their jobs to cut down on driving. Those changes effectively lock in lower gasoline consumption rates for the future, regardless of the state of the economy or the level of gasoline prices.
The Journal reported that pinched consumers also are speeding up their shift to more fuel-efficient cars. Sales of large cars dropped by 2.6% in 2006 and by 10.5% in 2007. In January, they plummeted 26.5% from a year earlier, according to Autodata Corp.
Car dealers are selling fewer minivans and large sport-utility vehicles. In fact, only small cars and smaller, more fuel-efficient SUVs, are showing a rise in sales. Small-car sales in January were up 6.5% from a year earlier, while sales of crossover vehicle grew 15.1%, Autodata Corp. says.

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