Crummy Economy Leads to Lower Gas Prices

If you're tired of hearing about how bad the economy is, we feel for you. We'd avoid all the downer economy stories if we could, but here's one that's impacting how we drive and how much gas will cost: In January, U.S. drivers bought 1% fewer gallons of gas than they did in 2007. That's the second consecutive month when there's been a decline in gas usage. Why is that a big deal? Gas use has risen an average of 1.6% every week for the past 10 years.

Experts point to the down economy as the reason for the reduction and conclude that lower demand will lead to less severe spikes in gas prices this spring and summer. Of course, we'd throw in the fact that half the country has been covered in snow for the past month or so as another reason people stayed off the roads and away from gas pumps. Whatever the reason, a more reasonable price hike when the weather turns nice sounds good to us. Let's hope people can afford to take their summer vacations by then.

High Prices Cut Gasoline Demand; Prices Could Drop (USA Today)

Comments

Uhh, I'm pretty sure you meant that weekly gas usage has increased 1.6% year-to-year. Weekly usage increases of 1.6% would more than double gas consumption every year.

It could be the economy, but it's just as likely that people are changing their driving habits because gasoline has stayed consistently around $3 per gallon for an extended time. Unlike the 1973 and 1980 gasoline price increases, people didn't change their habits immediately this time around - they continued to buy large vehicles and gasoline demand actually increased to this point. In '74, you could buy a year old Cadillac for a song as people dumped the gas guzzlers and paid $1,000 over sticker for a Honda civic. Same story in the early 80s, when gasoline hit $1.50 per gallon - drivers immediately moved to smaller more efficient vehicles. And it was exactly those actions that lowered demand enough that OPEC was on the ropes and we enjoyed $1 per gallon gasoline for years. In the interim vehicles started getting bigger and more powerful again. Now the continued reality of shelling out $3 to drive your Tahoe 13 miles is sinking in and apparently habits are changing, albeit more slowly than in the past. The interesting point is that people aren't in more of a feeding frenzy to buy smaller cars. Today's small cars don't exact much of a space or comfort penalty compared to larger vehicles - they're much better cars than the subcompacts of the 70s and 80s. The cost of driving the Hybrid Civic and Prius turn the clock back to the time when gasoline was basically free. The drop in gasoline demand might be the sign of a bad economy, but I'd like to believe it's a sign that people are wising up and using less gas. If we all cut our driving by a couple thousand miles a year through consolidating errands, carpooling or just walking or biking once in a while, we'd see gasoline prices drop below $2 per gallon. You can take that to the bank, because we've done it before.

Trainer,
I have to say that you a little wrong...
While we might enjoy small 10c price movement, we're definately not going to have gas under $2/Gallon.
The reason is not here. The reason is the world. In India they just about to start driving cars, in China they drive more and more cars. Not to mention East Europe... And OPEC is there to hold production. So now we're not the only car nation. they all drive now. And this is why we will never see a lower price for gas. It will only grow.

Tony, you might be right, but history teaches that Americans will see lower prices at the pump if they either move to smaller cars or drive a little less. We still produce nearly half the oil consumed in our nation, and as OPEC's biggest customer can still control our own destiny on prices by cutting demand.

Trainer,
The history was written before $2000-cars in India, before China, before people around the world (those who barely had money for a bicycle) started to live better and drive cars. So they are consuming. Global demand is high.
And if today we might still the biggest customer of OPEC (I don't know) it not going to be this way for too long. And as driving force will grow, even that we lower owr demands, the price will still be high. Because total demand will not be less but more.
And also watch this - as gas prices happen to drop 30c, army of SUV-lovers will run to the dealers and we'll be right back where we started.

Tony, it's hard to convince someone as pessimistic as you, so I'll give you some FACTS that back up what I'm writing. According to the U.S. Energy Information Administration, the United States is the world's number 3 oil producer behind Saudi Arabia and Russia - we still have a lot of oil here at home. We are not captive to demand from China and India at this point - we are captive to our own habits. Here are more facts: The US is the number one oil consumer in the world, consuming roughly three times the oil consumed by China, which is ranked 3rd. That makes us OPEC's biggest customer and if we lower our demand for oil it will lower the price of crude. India is not even on the list of the top 15 oil consuming nations, so your attempts to confuse and scare people are baseless. I'll say it again: Americans don't have to give up their trucks and SUVs, but if they make it their patriotic duty to change their habits slightly and cut back their gasoline use, good things will happen. If substantial numbers of people move to small cars as they did in the 70s and 80s we will see gasoline prices in the US drop below $2 per gallon. Our fate is in our own hands, not China or India's.

Tony is talking about the future. Trainer your talking about the short term. Short term our usage does control prices. Long term as demand increases around the world China and India, they will cause an increase in price. China is projected to take U.S. over in consupation. I think the price of oil is slowing down their consumpation. Remember reading a story its been awhile but China has been rationaling their consumpation.

Trainer ,
I hope, what you've said is good. And I didn't want to say that India in particular is a great threat today but they could be rapidly growing threat in the near future. China is growing fast.
Also, I thought that major point of using less gas is saving our environment. From this perspective, I admit, I support higher prices for gas.
And finally, I still think that gas wouldn't be cheaper. No matter how much resources we have, the market dictates prices. And before barel of crude was $25 and now? It was $100 at some point. For gas to go over $1 lower? It is unrealistic at this time. OPEC will keep the quotas and we are not going to drill much more here.
Again, everything you've said is may be right but I don't believe it will go way lower of present. Ever.

DodgeFan and Tony: You both make good points: the long term price outlook for oil is not good, but I don't think we should give up on conservation as a positive price control mechanism. One hopeful sign is that China is mandating an average fuel economy of 36 mpg. I hope that Americans drive a little less and move quickly into plug-in hybrids when they become available to substitute some of our oil usage with electricity. Consider that the average American drives about 40 miles a day over the course of a year. The Chevy Volt's battery will allow 40 miles of driving before the gasoline engine kicks on to charge the batteries back up. If we all drove that type of vehicle there would be many days when we'd be on electricity only - a locally produced energy source. If our whole fleet were plug-in hybrids we could probably get by on our domestic oil supplies and wouldn't have to import a drop. That would leave plenty for China and other well deserving countries who are finally getting the opportunity to drive cars.

Plug-ins could be a good solution, especially, if you can charge it without using national grid. I saw some designs for home wind stations. Using national grid will lessen usage of auto fuels but encrease usage of power plant fuels (can you imagine if all cars were plug-ins - we would run short of electricity probably). But if you would have a locally installed wind station and used it only to charge your car, that would be totally cool and safe for the environment.

Very civilized arguments, well done, compared to other posts I've seen. Anyway, gas prices won't go back down to the prices they used to be, because as Tony has said, more and more people are driving nowadays and that in turn leads to more oil demands. Oil and gas won't be around forever, hybrids aren't really a long term answer, unless the fuel changes to somthing renewable. Electric cars are really the most viable, although somewhat more expensive, answer; unless people drive 200 or more miles a day theres no need for 300 miles or more range out of batteries. Walking is an even better answer, exercise is lacking, but the way things are going the more people that walk, the more crime rates will rise. Like I've said, oil isn't forever.

Trainer,

Going down from gas guzzling SUV to compact cars?

Not happening.

As long as the Big 3 not making as much money on compacts as those gas guzzling cash cows. I don't see that day coming anytime soon.

Plus, obesity is contributing to part of that too.

Nah! increase in gasoline price is always higher than lowering the price. If they increase the price it will be a huge increase but if they make a decrease its just a few cents. . .

:(

J,
One of my co-workers just traded a Honda CRV, which is an SUV, for an '08 Prius - so I think people are changing their ways because of the sustained high gasoline prices. Another co-worker with a GMC Envoy wants to do a test drive of my Prius because he's thinking of making a trade. Then I did some research and came up with this fact: In November 2007, the Toyota Prius outsold the entire Buick, Saturn, Acura, Subaru and Mercury brands. It nearly outsold the entire Volkswagen and Cadillac brands. Combined with the documented drop in the sales of Pickups and large SUVs, I'm betting a lot of those people traded in larger vehicles...

Good point trainer. That doesn't even take into account the number of people trading down to a used small car. If you don't think people are doing it, look at the way used compacts are holding their value compared to used full sized cars and suvs.