The retail price of U.S. gasoline has fallen every day for the past nine weeks, a fact visible to motorists on gas station signs. Another trend is less apparent: these motorists seem to be driving less.
Weakening gasoline consumption among the world’s largest consumer could be a reaction to record prices set in June above $5 a gallon. This would also be consistent with the announced slowdown in the US economy. If confirmed, it would help ease the global crude oil market, which retreated near its trading level before Russia’s invasion of Ukraine.
Measuring U.S. fuel economy in real time is tricky, but multiple news sources say it’s leveling off or decreasing from previous summer “driving seasons.”
The US Energy Information Administration, a government statistics agency, estimated that gasoline demand averaged 8.9 million barrels per day in the four weeks to August 5, just under a month earlier and 6% lower than the same time last year when prices were $3. a gallon. Last week, the EIA lowered its annual forecast for gasoline consumption.
An Oil Price Information Service survey of gas stations nationwide suggested the volume of gasoline pumped last week was down about 2% from the previous week, 5% from the year previous year and 19% compared to the same period in 2019, before the start of the Covid-19 pandemic.
Travel data from the US Federal Highway Administration showed traffic volumes hit a wall in June after consistently topping 2021 levels in the first five months of the year. Traffic in June, the last month for which data was available, was 1.7% – or 4.8 billion vehicle miles – lower than in June 2021. In California, where gasoline prices had reached over $6 per gallon, the decline was 3.5%.
AAA, the motoring group, said a survey found around two-thirds of drivers had changed their habits since March due to high prices – mainly by reducing the amount they drive and combining their journeys . At $3.96 a gallon on Monday, gasoline prices were down more than a fifth from their mid-June peak and below $4 for the first time in nearly six months, according to AAA.
“It hasn’t catalyzed demand for gasoline,” said Tom Kloza, head of oil analysis at Opis. “Even though we have been dealing with lower prices. . . demand has not been increased.
Gasoline prices may not be the most important factor in determining whether Americans get back on the roads, said Giovanni Circella, a travel behavior expert at the University of California, Davis. Employers tightening back-to-work rules or another pandemic wave could override any price movement.
A rise in unemployment – the unemployment rate in the United States was at a historic low of 3.5% last month – as rising interest rates cool the economy could also reduce demand for car commuters . A combination of the largest expanse of paved roads in the industrialized world and poor public transportation in many parts of the United States means that many people have no choice but to drive.
Mobility data from analytics firm Inrix suggests passenger traffic was operating at around 93% of pre-Covid levels this summer, but was around the same level as last year.
“Driving is relatively inelastic, meaning a large change in price only causes a small change in driving,” said Inrix analyst Bob Pishue. “In the vast majority of the country, there is no alternative to driving.”
Analysts said the latest price drop below a psychological threshold will have an effect. “I think getting below $4 is going to be important. I think we’ll see people respond positively,” said Prashant Malaviya, a marketing professor at Georgetown University. “It will have a disproportionate impact on the perception or emotional response that things are improving.”
Oil refiners say the market remains tight after a large amount of capacity was taken offline during the pandemic. Gary Simmons, chief commercial officer of Valero Energy, recently told analysts that the company experienced a “little lull” in early July, but demand has since returned to June levels.
In the long term, high fuel prices could accelerate the adoption of electric vehicles in the United States, just as they boosted sales of hybrid vehicles in the early 2000s. This would support efforts to move away from gasoline engines. combustion through tax incentives included in the climate bill passed by Congress last week.
“A potential impact [of higher prices] is that we’re going to see more fuel efficiency gains – a new wave of fuel efficiency increases – but the other big thing is we’re going to see more and more electric vehicles on the road,” said Circle. “With government pressure supporting this, high petrol prices might actually help a bit.”
