When people find out that my job entails tracking US gasoline prices, they often ask, “Why are prices so high?” and “Are they going to continue to rise?” Many accept the explanations, but they still like to criticize oil companies for the high prices. This topic is much like talking about the weather; people just like to converse and voice their opinions. As much as they detest the high prices, consumers continue to dip into their pocketbooks and continue with their normal driving habits.
How high will gasoline prices have to go before consumers modify their driving habits? Recent reports on gasoline consumption indicated that as prices have risen, demand has not slowed down.
According to the US Energy Information, 4-week average demand data reported weekly for motor gasoline rose after Feb. 2 but started a slow descent in the middle of April, when gasoline prices, according to Oil & Gas Journal’s weekly gasoline price survey, hovered around $2.78/gal.
In the latest data available, EIA’s 4-week average for motor gasoline consumption for the week ending May 11 was up slightly at 9.293 million b/d. OGJ’s average gasoline price for regular unleaded for May 9 jumped 9¢ from a week earlier to $3.05/gal. Despite the continued rise in price in gasoline, motorists are not slowing down.
Vehicle changes
High gasoline prices have affected not only consumers’ pockets but also the US automobile industry.
In 1990, the industry introduced what would soon become one of the hottest vehicles on the market, the sports utility vehicle (SUV). Many baby boomers, who typically start purchasing trends, found that the SUV met their needs beyond what the family van or sedan once did. While sales were slow in the beginning, the SUV’s popularity soared. In 2000, SUV sales in the US exceeded 3 million units. Adding to popularity of the vehicles were favorable financing options and rising disposable incomes. Families wanted something that could meet several needs, whether it was to tow boats or camping trailers, chauffer children to soccer games, or simply provide the luxuries of size and comfort. Gasoline prices were not a worry to most consumers who could afford and drive SUVs.
According to Ford Motor Co. sales analyst George Pipas, the auto industry began to see a slowdown in 2003, when SUV sales dropped by 4% due in part to the expanding market for sales of crossover utility vehicles (CUVs). In 2005, SUV sales declined by 13% as rising fuel costs drove more and more people to prefer fuel-efficient vehicles. The trend favored CUVs, which typically get slightly better gasoline mileage. In 2006, CUV sales amounted to 2.4 million units, topping SUV sales by 300,000 units.
The National Automobile Dealers Association’s chief economist, Paul Taylor, in a speech earlier this year, said he expects the CUV market to “remain a key source of continued growth, rising by another 8% in 2007.” He also said, “Sales of new cars and light trucks in 2007 will roughly equal the 2006 sales mark of 16.5 million.”
Changing habits
Americans love and enjoy the independence provided by personal vehicles, which they are far from ready to abandon. Most of them are making room in their budgets to continue driving the way they want and need.
If gasoline prices continue to rise, however, many can be expected to begin to carpool, use alternative transportation, or manage schedules to cut time spent driving. The question mentioned earlier about how high gasoline prices go will be determined largely by adjustments such as these.
Small changes in many personal routines, coupled with big changes already evident in vehicle preference, can make a dramatic difference in retail gasoline prices.
