Drivers Cut Gas Use to Five-Year Low

Economics 101: High prices lead to demand destruction:

"As average gas prices hit a record high of $4.108 a gallon this week, the government released new data showing that drivers have cut back their use of the fuel to levels not seen in five years.

The average price of gasoline in the U.S. has been above $4 a regular gallon for more than a month, AAA reports, putting a dent in gasoline demand.

Even through the Fourth of July weekend — a time when Americans traditionally get on the road — gasoline consumption dropped 3.3% from last year to 9.347 million barrels a day, according to weekly data released by the federal Energy Information Administration. For the first week of July, that is the least drivers have used since 2003, when consumption was 9.05 million barrels a day . . .

The weaker demand, combined with plentiful gasoline supplies, could eventually lead to lower prices at the pump. The price for gasoline for August delivery inched up 0.5% to close at $3.3808 a gallon on the New York Mercantile Exchange, while oil-futures prices closed one cent higher at $136.05 a barrel."

Hence, why it is often said that the high prices are the cure for high prices . . .

20080709205618

>

Source:
Gas Prices Spur Drivers to Cut Use to Five-Year Low
Supply Not an Issue, But Other Demand Keeps Oil Price High
ANA CAMPOY
WSJ, July 10, 2008; Page A3
http://online.wsj.com/article/SB121564732244940919.html

~~~

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. ferd mertz commented on Jul 10

    meanwhile, subsidies in oil producing countries shield consumers from the market price.

  2. Mr. Obvious commented on Jul 10

    Companies like XOM are taking a hit on the spread. Somehow I don’t think that gas prices will be coming down as quickly as they should via the supply/demand curve.

  3. socal commented on Jul 10

    I drove a thousand miles over the two weeks prior to the 4th of July weekend, up the I-5 and down the 101.

    I saw a tiny percentage of the number of RV’s that I would have seen years past. Traffic in general was remarkably lighter. Especially on the 5, it was more like the traffic you see in the middle of the night. And for the first time I can recall, gas prices along the freeway are lower than prices in metro areas.

  4. Greg0658 commented on Jul 10

    heres another study idea :-)

    is there a way to tell when a job loss is due to high gas prices?

    I can envision a burger flipper traveling 15 miles to work for a nooner 4 hour shift saying “so long” and moving out of his appartment into his friends place (parents)

    if he quits thats not a reportable job loss either (I think)(until the census)

  5. Van commented on Jul 10

    If consumption is down, why are inventories going down as well?

  6. wally commented on Jul 10

    Consumption and inventories are both going down because total use is declining – we are buying less oil. Is the difference made up by subsidized purchases by Chinese and Indian consumers? Maybe. If so, The US trade imbalance eventually goes to the oil producers indirectly.

    What is missing is a months-of-supply chart, much like you see for housing. It looks to me as if actual inventory has decreased more slowly than consumption – which means that actual inventory is up. That is, more months of supply stored now than previously.

  7. Dave commented on Jul 10

    This is a misuse of the word “demand”, in an economics context, a common occurance among journalists.

    “The average price of gasoline in the U.S. has been above $4 a regular gallon for more than a month, AAA reports, putting a dent in gasoline demand.”

    The author should’ve used “consumption” instead of “demand”. The demand curve may have remained unchanged, but the rising price has led to the quantity consumed to drop. For all we know, the demand curve may have even shifted to the right as our population continues to grow. In this way, demand may have grown, yet the quantity consumed shrank.

  8. Jim commented on Jul 10

    What do you think about Tboon Pickens Plan to save our country from the oil crisis? I like what Ive seen of his Plan, His plan seems smarter the the BarkO’s Or McLame. Ive signed a petition this morning asking McCain and Obama to embrace his plan. You can go to the link if you want to sign the petition, or see more about the plan. http://www.tboonpickens.com

  9. zackattack commented on Jul 10

    What the EIA numbers yesterday show me, with the big draw in crude and the build in gasoline, is that supply is falling faster than demand is being destroyed.

  10. Mysticdog commented on Jul 10

    And yet the gas prices remain high, as does oil.

    This is so far outside the normal rules of supply and demand, it is pointless to talk about it in those terms. Oil is at least 50% higher in cost than S&D says it should be, and several hundred percent higher than its production and transport costs would reasonably lead one to expect it to be.

    It is driven by speculation. You can believe in peak oil and still see that most of the current cost is being driven by speculation and a population held hostage by its lack of energy options.

  11. claymeadow commented on Jul 10

    “Posted by: Dave | Jul 10, 2008 10:14:41 AM
    What do you think about Tboon Pickens Plan to save our country from the oil crisis? I like what Ive seen of his Plan, His plan seems smarter the the BarkO’s Or McLame. Ive signed a petition this morning asking McCain and Obama to embrace his plan. You can go to the link if you want to sign the petition, or see more about the plan. http://www.tboonpickens.com

    is the above a tboonepickens social networking post a la ron paul? not saying i’m for or against just thought this may become a trend.

  12. Mike in NoLA commented on Jul 10

    T. Boone is something of a charlatan. a few years ago, he was yapping about wind power being a terrible idea. Don’t have the link handy, but you can google it.

    He’s also got an even better crackpot idea: taking advantage of foolish Texas water rights laws to drain an aquifer used by farmers and ranchers and sell the water to San Antonio and other towns hundreds of miles away. He and his partner only own a couple of hundred acres, but can drain the water from under many thousands of acres of land; water need by farmers. Here’s one link. There are others
    T. Boone Pickens in Texas

    BTW, I have noticed my last couple of weekly commutes between New Orleans and Houston that prices have stabilized, and even declined, along the I-10 corridor if you are willing to keep your eyes open. Filled up in Baytown Texas at exit 789, I believe, for 3.83/gallon. Amazing that it seemed like a bargain at the time.

  13. wunsacon commented on Jul 10

    >> a population held hostage by its lack of energy options.

    Held hostage by its own voting record and interest in diversions of all kinds.

  14. DL commented on Jul 10

    Yes, there has been a slight decline in gasoline consumption.

    I still think that crude oil will go to $150-160 within the next two months.

  15. Martin commented on Jul 10

    Here in Michigan people are slowing down on the highway. More people going 65mph than ever before. Less RVs and trucks on the road. Everyone is selling their snowmobiles and boats.

  16. DownSouth commented on Jul 10

    DL said: “I still think that crude oil will go to $150-160 within the next two months.”

    I think you are probably right, DL.

    IEA (International Energy Agency) just bumped its projections for global demand for 2008 and 2009…

    http://www.iht.com/articles/ap/2008/07/10/business/EU-International-Energy-Agency-Oil.php

    while at the same time it looks like Saudia Arabia is running up against some production constraints…

    http://www.businessweek.com/bwdaily/dnflash/content/jul2008/db2008079_865368.htm

    I sincerely believe the Saudia Arabian government is not comfortable with oil prices this high. If it could do something to bring them down, I believe that it would. But each passing day brings more and more evidence that oil prices are beyond even its control.

  17. DL commented on Jul 10

    “Economics 101: High prices lead to demand destruction”

    The more challenging question is, what will it take to bring down the price of crude oil (as measured in U.S dollars) other than Federal Reserve tightening. Even a few quarters of negative GDP growth might not be enough to do it, because the dollar would likely fall further. Thus, on one side of the ledger, we’ve got consumers (who are cutting back), but on the other side, we’ve got the commodity/currency speculators, and the oil suppliers, all of whom have a say in the price.

  18. wunsacon commented on Jul 10

    >> T. Boone is something of a charlatan. a few years ago, he was yapping about wind power being a terrible idea. Don’t have the link handy, but you can google it.

    Mike in NoLA, maybe you’re right overall. But, can’t people change their minds?

    A few years ago, fossil fuels were much cheaper. Pickens might’ve changed his mind as the economics of wind became more favorable.

    I like our host’s phrase: “strong opinions, loosely held.”

  19. Sinomania! commented on Jul 10

    What SoCal and Martin said

    Over the July 4 holiday traffic on the LA-San Diego corridor was eerily light. Most of my neighbors have sold their RVs. Driving slower – ugh – everywhere and always in the left lane….

  20. Mark W commented on Jul 10

    “Hence, why it is often said that the high prices are the cure for high prices . . ”

    The caveat here is that a drop in US consumption doesn’t necessarily lead to lower prices. China, India, and the like need to decrease their consumption curves as well otherwise price declines would be negligible.

  21. leftback commented on Jul 10

    Ah, the oil bulls are back… how nice. They were gone for a few days there and I missed them, especially the fact that they are always right…!!

    Well zackattack, as I understand it, the crude gets refined into products and then those get distributed, so you would expect that a fall in gasoline demand would lead to a build in gasoline supplies BEFORE that feeds back to the stocks of crude.

    So as demand destruction continues (and the July 4th weekend provided PLENTY of anedotal evidence for this) the probability of a great big unexpected increase in crude inventories continues to rise, meaning that some Wednesday morning, and this may happen quite soon, oil is going to go cliff diving.

    I know, I know, it’s different this time….

  22. VJ commented on Jul 10

    Van,

    If consumption is down, why are inventories going down as well?

    Because they are cranking down the capacity production of the refineries as well.

    Would you rather manufacture 4,000 widgets and sell them for $1 each, or manufacture 1,000 widgets and sell them for $4 each ?
    .

  23. VJ commented on Jul 10

    Mark,

    The caveat here is that a drop in US consumption doesn’t necessarily lead to lower prices. China, India, and the like need to decrease their consumption curves as well otherwise price declines would be negligible.

    You’re conflating domestic gasoline with global crude oil.

    China and India are not consuming gasoline refined in the U.S.
    .

  24. VennData commented on Jul 10

    People are driving less because they are afraid of being hit by Barack Hussein Obama’s campaign bus.

    Four more years. Stay the course on energy policy, ‘cuz buses, and all public transit is bad.

    Private jets are the solution if only Nancy Pelosi would stop trying to charge working people a “fair rate” to use them.

  25. AvnerUWS commented on Jul 10

    If inventories are down 5 mil barrels (5.9 curde – .9 mil increase in gasoline) that is .715 mil drop per day. That drop in inventory is about the same as the drop in daily usage if our usage is down 3.3% from 21 mil/day.

    My guess is you will find that our days of inventory on hand is rising right now and refinery capacity is dropping (unless we are selling refining to others).

  26. T Boone Pickens commented on Jul 10

    Barry

    A new wind power ETF ( ticker:WINDBAG ) is now available, along with some similar alternative energy products.

    I am recommending y’all get long these heah funds.

  27. claudio tiblier commented on Jul 16

    The first thing to do is get rid of all the gas guzzling yellow school buses. Build smaller schools closer to the neighborhoods. Let the kids walk to school. It’s good excerse and they can socialize with neighbor friends on their way to and from school. Lets look into the cars out of India and Spain that run on compressed air and electricity .How disappointing to see congress grid locked and do nothing. Everytime I watch the senate and House I see my representatives stand around and do nothing. If they were paid for what they do quite frankly they would be eligible for food stamps.T Boone Pickens eventhough an oil man has all my respect for thinking about his country first by exploring ways of becomming independent from mid east oil. If we start drilling here and bring the price of gas down we don’t want to go back to our old gas guzzling ways. Maybe we, if we have as much oil as some people say, why not sell it to china, government to government and reduce our debt.

  28. Gee Lee commented on Aug 6

    Used RVs for Sale by registered dealers online, Buy Sell used Motorhomes by RV dealers also providing RV financing for various manufacturers at One Stop.

Read this next.

Posted Under