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Americans start to break gasoline habit

Consumption drops as prices hit historic highs

By Ana Campoy , The Wall Street Journal

Published March 4, 2008 at 12:05 a.m.

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As crude-oil prices climb to historic highs, steep gasoline prices and the weak economy are beginning to curb Americans' gas-guzzling ways.

In the past six weeks, the nation's gasoline consumption has fallen by an average 1.1 percent 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 rising 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.

Investors piling money into commodities as a refuge from inflation helped push oil prices Monday above their inflation-adjusted record of $103.76 a barrel, set in 1980.

As refiners pay more for the oil they use, gasoline prices have gained sharply in recent weeks to an average of $3.13 a gallon in the week ended Feb. 25, up 40 percent from $2.24 a gallon in January 2007. That's stoking worries that prices will rise even more sharply as demand gets a boost from the approaching vacation season. Some experts predict gasoline could cost as much as $4 a gallon this summer.

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 dampen the rise in prices as refiners build up a safety margin against fears of supply disruptions, experts say.

Pain curbs appetite

Economists and policymakers 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.

Economists who study the effects of gasoline prices on demand say consumers tend to look at short-term price spikes as an anomaly and don't do much to change their habits. They might spend less elsewhere to compensate or take short-term conservation measures they can easily reverse, such as driving slower or taking public transportation, but the impact is minimal.

Regular gasoline prices jumped to $2.34 a gallon at the end of 2006, up 62 percent from 2003, according to the U.S. Energy Information Administration. Yet demand continued to grow at an average 1.1 percent a year. Consumers were better able to absorb the increase because it was spread over four years, and the economy was doing fairly well.

Consumer pinched

Today, a weakening economy is intensifying the effects of high gasoline prices, at the same time Americans are being pinched by broader inflation. In January, consumer prices were up 4.3 percent from a year earlier, a 16-year high, led by sharply rising food and energy costs. Even stripping out food and energy, the so-called core inflation rate was up 2.5 percent from the previous year, reflecting higher costs for purchases such as education and medical care.

The combination of forces is prompting Americans to cut back on driving, sometimes taking public transportation instead. It's also setting the stage for what may be a long-term slowdown in gasoline demand by forcing Americans to become more fuel-efficient faster.

Pinched consumers also are speeding up their shift to more fuel-efficient cars. Sales of large cars dropped by 2.6 percent in 2006 and by 10.5 percent in 2007. In January, they plummeted 26.5 percent 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 percent from a year earlier, while sales of crossover vehicle grew 15.1 percent, Autodata Corp. says.

Comments

  • March 4, 2008

    4:50 p.m.

    Suggest removal

    Diff writes:

    What would anyone expect?
    My commute to work alone is now costing me about $35-40 bucks a week, that is just over $1800 per year. (just my 5 day a week commute nothing extra)
    It was not too long ago was only about $20; $800 a year less. My commute being about average and double those numbers for the average middle class household. Plus for many there are the kids activities, and the week end trips etc - The cost of gasoline is taking a significant amount of money out of play in our economy. I thought about a year ago that this would cause a significant slow down, and wondered why the Fed was then raising rates at a time they should have at least stayed steady - the FED missed just how much rising energy cost (not just gasoline) would affect the economy. Add to that in more recent months the increased cost of food - due in large part to the corn for ethanol debacle (another subject all it's own)plus the mortgage crisis from the adjustable rate mortgage payments going up - taking more out of the economy (one could create another thread on who is to blame for that one... )
    But let's look at the price of Gasoline - Crude oil stocks are up - yet prices are still on the rise. Gasoline delivery at the pump is down slightly from a year ago, and gasoline stocks are also up.
    YET gasoline has just spiked at almost $3.10.gal.
    Oil company profits ( as I am sure you have heard) are up - ALOT and I'd bet are going to be up again in the first Q2008.
    WE are getting a royals screwing and sitting still for it.
    I think we are still feeling the effects from those White House "Energy Policy" meeting that Chaney had a few years back.
    No mention of an investigation in Washington?
    To all of this one must ask WHY?
    Wake up people it is time to WAKE UP

    BTW check this energy department web site - http://tonto.eia.doe.gov/oog/info/twi...
    If you want to see some interesting info supporting what I say.