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HankL -> Gas prices don't worry anyone any more? (3/30/2007 9:13:11 AM)
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March 30, 2007
Drivers Shrug as Gasoline Prices Soar
By CLIFFORD KRAUSS, NYT
HOUSTON, March 29 — Prices at the pump are rising again, much as they do every spring as oil traders bid up the price of crude ahead of possible summer shortages. Possibilities for more conflict in Iran and elsewhere in the Middle East are adding to the surge.
But there is something new this time, energy experts say, in how drivers are reacting — or, more accurately, not reacting, even as the price of gas has climbed over the last two months to a national average of more than $2.60 a gallon. It has topped $3 a gallon in many parts of the country, particularly along the Pacific Coast.
In the late 1970s, OPEC oil shocks and gas lines persuaded most Americans to sacrifice some of their pleasure trips and drives to the mall, ease up on the gas pedal, and switch to the bus or train.
But as Americans enter the sixth year of rising oil and gasoline prices, their shift in driving habits this time has been much less extensive. What’s more, in recent weeks, gas consumption has gone up, not down, and drivers are changing their daily driving habits only slightly.
“I don’t think about gas prices at all,” said Michael Machat, 48, a lawyer in West Los Angeles, where gasoline prices are among the highest in the country. As he filled up his BMW with super unleaded at $3.39 this week, he added, “I guess maybe if it was $10 a gallon, I’d think about it.”
A recent study that Christopher Knittel, an economics professor at the University of California, Davis, helped write showed that every time from November 1975 to November 1980 that gasoline prices went up 20 percent, consumers changed their driving behavior by cutting gas consumption by 6 percent per capita nationwide.
But from March 2001 to March 2006, drivers reduced consumption just 1 percent when prices rose 20 percent. Prices swung up and down seasonally during both periods, but Mr. Knittel said the two periods were comparable because regular gasoline prices increased in both periods by about 66 percent, to $2.50 from $1.50 in real terms, set at 2000 dollars.
While more and more consumers around the country are buying smaller, more-efficient cars and fewer S.U.V.s, that trend is unfolding a lot more slowly these days than 30 years ago. It was a very different era back then, when Congress was willing to enact tougher gasoline standards and when President Jimmy Carter called on the country “to live thriftily” and “find ways to adjust and to make our society more efficient.”
“One would think that with prices up over the last few years, people would drive less, but that’s not the case,” said Aaron Brady, an expert on gasoline refining and consumption at Cambridge Energy Research Associates, a consulting firm. “Demand is up over the last year.”
The Department of Energy reported on Wednesday that gasoline demand for transportation over the last four weeks averaged 9.2 million barrels a day, or 1.6 percent higher than in the corresponding time last year, when prices were a bit lower. The rising use by consumers and businesses is putting further pressure on prices. On top of that, United States commercial crude oil inventories fell by 0.9 million barrels in the week ended March 23, compared with the previous week. Spring is also the season when refineries retool, producing slightly less gasoline.
Economists say the increasing demand for gasoline and the muted reaction among drivers are related to many factors, all having enormous policy implications as the Bush administration and Congress try to find ways to stem climate change and oil imports, which now supply about 60 percent of American needs.
Experts note that commuters are driving longer distances to work because of suburban sprawl, that improvements in mass transit have fallen behind over the years and that driving to malls and ferrying children around has become part of the American lifestyle. Some suggest that with more dual-income families, high gas prices mean less to many families than they once did, and credit cards have eased the immediate pain at the pump.
“Our preferences have changed over the years and we are much more willing to continue our driving habits in the face of price increases,” said Mr. Knittel, who is studying driver response to gas price increases. “Unlike the 1970s when people did drive less, data shows people now are not taking the extra step to conserve.”
Interviews with drivers around the country show they are less than alarmed by the new run-up in prices, even if they are not happy about it. And they still suspect Big Oil is fleecing them. Not surprisingly, higher-income drivers are particularly unruffled, but middle-income drivers also seem fairly tranquil.
Veronica Burgos, a 39-year-old bookkeeper, says she is not about to give up her aging gas-guzzling navy blue Ford Explorer to commute to work and shuttle her children around, even though gasoline prices in the Los Angeles area where she lives are now “ridiculous.”
“With this S.U.V., you really feel it, but I have two kids so I need it,” she said. “In reality my husband would probably rather that I don’t drive the S.U.V. so much, but I still do and I drive quite a bit. With work and two kids and all their activities, especially on the weekend, we’re more comfortable in the S.U.V. So what are you going to do?”
Across the country prices of gasoline have been shooting up for the last two months, with AAA reporting that the average retail price for regular unleaded is $2.62 a gallon, the highest since last September and 12 cents higher than a year ago. A month ago, the average was $2.37.
With crude oil prices rising in recent days because of Iran’s detention of British military personnel last week, some experts say retail gasoline prices may go up another 10 or 15 cents in the next couple of weeks before settling down. Oil closed up $1.95 at $66.03 a barrel on Thursday.
“The market rally in gasoline is like the Oscars,” said Tom Kloza, chief oil analyst at Oil Price Information Service, a trade publication. “It gets moved up every year.”
The immediate cause for the rise in gas prices is the annual slowdown in March at the refineries, as they switch from winter to summer oil blends. But this year, that has been accentuated by refinery accidents, escalating tensions over Iran and more speculation by traders.
“The prices for unleaded gasoline are way overblown for this time of year,” said Michael Rose, director of the energy trading desk at Angus Jackson in Fort Lauderdale, Fla. “The traders are just going along with a theory that we are going to have a gasoline shortage in the summer.”
Most experts expect prices to ease in April, as refineries resume full operation, before rising again during the summer driving season. But many are wondering why the demand for gasoline is going up in March, a month not usually known for heavy driving.
“Is it because the economy is stronger or because people are going back to their old driving habits?” wondered Charles T. Drevna of the National Petrochemical and Refiners Association.
There had been signs that the high price of oil was beginning to have an impact on consumption. The International Energy Agency reported that oil consumption in its 30 member countries, including the United States, declined 0.6 percent last year, the first drop in more than two decades.
Sales of sport utility vehicles peaked in 2002, and have fallen since; sales of small cars rose 5.3 percent last year.
But in research for a new study, Mr. Knittel said he found little change in the average fuel efficiencies of vehicles driven by motorists over the last five years.
“Our preliminary analysis is showing vehicle choice is less sensitive to gas prices today than compared with the 1970s,” he said. “We might be buying fewer S.U.V.s, but a lot of the shifting is to cars that are not appreciably more fuel-efficient, such as minivans.”
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HankL's note:
The "elasticity" of price between supply and demand for gasoline has interested me for some time, because I have wanted to know in my mind what level of price increase would cause US Citizens to stop using the 60% of the oil that we import,
or less drastically,
the 25% of oil we import from countries other than our economic neighbors Canada and Mexico.
The article below says the gas price to gas use connections seems to be 20% to 1%.
If the ratio is 'linear'
then a 20% price increase would lead to a 1% consumption decrease,
so a 1200% would be necessary (25 $/gallon )
to get gasoline use to drop 60%.
Why is this important?
Well the chances for war in the middle east seem to be high
and if war happens and oil supplies are cut off for awhile
there will be two options until a military solution could be 'imposed'
(1) gas rationing, or
(2) much higher gas taxes to allow the market to press down consumption.
I am not advocating either,
but just like we ask our soldiers to
'prepare for the worst and hope for the best'
the country needs to do the same.
The US does have a little bit less than 3 months crude oil stored in the old salt mines of the 'Strategic Petroleum Reserve', and Congress has authorized doubling this. Hurricane Katrina's hit showed us that we ought to be storing refined gasoline and diesel in these old salt cavities instead of crude oil that needs to be refined before it can be used.
{For math geeks: I suspect the price vs. consumption relationship might be 'exponential' with the section in the 0-100% price increase range appearing to be linear but the 100%-1000% range much steeper as it follows a X raised to some unknown power of y.}
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