Peak Oil News: Gasoline usage heads down

Tuesday, April 22, 2008

Gasoline usage heads down

By Steve Everly

U.S. drivers are doing something they haven’t done for nearly two decades — consume less gasoline.

Gas consumption so far this year is down about 0.2 percent compared to last year, according to the Energy Information Administration. The federal agency is predicting that gasoline demand will be down 0.4 percent this summer and 0.3 percent for the year.

That may not sound like much, but it would be the first time since 1991 that there’s been a decline in annual gas consumption. And it would be only the eighth year since 1951 in which demand for gasoline has declined.

The federal agency noted that the decline was occurring in part because of a slowing economy. But it also said that higher gas prices were having an effect on demand.

“Sustained higher gasoline prices are beginning to show up in lower gasoline consumption,” said Tancred Lidderdale, an analyst for the Energy Information Administration.

Both gasoline and diesel prices are now at record levels.

According to AAA, the national average on Monday for a gallon of gasoline was $3.50 a gallon, or 64 cents higher than a year ago. Diesel was $4.20 per gallon, or $1.27 higher than a year ago.

A gallon of E-85, a blend that contains 85 percent ethanol, was $2.89 a gallon. AAA also gives an adjusted price reflecting the fact that ethanol has less energy than conventional gasoline. By that measure, a price-adjusted gallon of E-85 was $3.81.

Crude oil prices were up on Monday for the sixth straight day. Light, sweet crude for May delivery rose to a record $117.76 a barrel on the New York Mercantile Exchange before settling at $117.48, up 79 cents from Friday’s close.

Figures that track gas consumption can be volatile from week to week. But the idea that demand for the year will be down is gaining support.

Lehi German, publisher of Fundamental Petroleum Trends, said the federal agency’s prediction of a downturn was “in the ballpark.” In addition, diesel demand has shown signs of softening as well.

Although higher fuel prices were expected to have an effect on demand, it wasn’t clear just how high they would have to go to do so. Many market watchers believed prices would have to stay above $3 per gallon for several months or even a year.

That tipping point for gasoline demand may have arrived.

Mike Right, a spokesman for AAA Club of Missouri, said that a decline in gasoline usage shouldn’t come as much of a surprise. A survey conducted in January by AAA found that many motorists were already deciding to change vacation plans for this summer by planning for shorter trips.

“We are starting to see some signs of that,” he said.

Verne Covell of Smithville counts himself as one who’s had enough.

Now retired, Covell bought a pickup and travel trailer when he retired in 2000. Long trips with his wife to places like Canada were common.

This year, however, there will be at most a trip to south Missouri. The trailer may even stay in storage for the entire year because of fuel prices.

“We’re getting on and you don’t know how long you have,” he said. “But this year we decided it just got too expensive.”

There are indications that a fundamental shift in consumer driving habits may have started in December, when total miles traveled in the U.S. dropped 3.9 percent compared with the same month a year earlier. Miles traveled in the Midwest were down 5.8 percent.

Mainly because of the December drop, the Federal Highway Administration said it was estimating that miles traveled for all of 2007 were down 0.4 percent.

A question now is whether the curtailing of gas consumption could gain momentum, especially if prices climb further.

Steve Mosby is vice president of Admo Energy, an area company that helps other companies, including gas stations, control the cost they pay for fuel. He said his company had been getting recent reports from customers of substantial reductions in the number of gallons being pumped.

And those changes may show up in daily commuting habits in addition to plans for longer trips.

Demand already is increasing for automobiles offering higher gas mileage.

The Kansas City Area Transportation Authority also reports that bus ridership has been growing as gas prices have increased. Last year ridership was up 4.1 percent. For the first two months of this year, compared to the same period last year, the number of riders was up 9 percent.

“I certainly think gas prices are having an impact on our ridership,” said Dick Jarrold, a senior director at ATA.

A decline in gasoline demand could help give some relief from high prices. Although prices are surging as the traditional summer driving season approaches, some market followers expect prices to ease back later this summer.

One ongoing concern is that even though Americans may be cutting back on gas consumption, emerging middle classes in faster-growing countries such as China and India are quickly embracing the driving habit and pushing global demand for fuel higher.

“That’s the billion-dollar question,” Mosby said.


At 11:10 AM, April 24, 2008, Blogger Chad said...

It will be interesting to see if China dampens their demand at all as prices continue to increase. The way I see it, China, Japan, and South Korea have massive stacks of US backed bonds that can be used to buy oil. How would it affect US security if instead of China asking to cash those it was Iran?

At 9:28 PM, April 26, 2008, Anonymous Anonymous said...

The trouble with those bonds for the Chinese is inflation in the US economy will make them valueless in a few years as the US dollar loses value.

Even the slight oil pinch we are feeling now is triggering inflationary effects in the overall economic cycle and loss of the value of the dollar. When a major peak event occurs inflation will kick in to levels we have not seen since the 1970’s or worse.


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