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ANALYSIS - Americans go from rage to resignation over $4 gasoline
NEW YORK |
NEW YORK (Reuters) - When U.S. gasoline prices shot to $4 a gallon in 2008, sticker shock cut fuel demand and helped send world oil prices tumbling by more than $100 a barrel in just five months.
Pump prices have returned to near those highs, averaging $3.95 a gallon after rising 36 percent in a year. Oil has also soared, with Brent trading above $122 a barrel.
But this time, there are ample reasons to suspect $4 U.S. gasoline won't slash demand or trigger another oil price rout.
Outrage over prices among American drivers, who consume an eighth of the world's oil, is turning into resignation with summer driving season around the corner. Motorists may bristle, and alarm over fuel costs is growing in Washington, but experts say the tipping point at which prices would slash demand has likely risen sharply since 2008.
"In 2008, $4 gasoline prices seemed so high they were almost inconceivable. They won't be viewed the same way this time," said Lars Perner, a consumer behavior expert at the University of Southern California, who has written about fuel.
"Back then, the price at which demand fell off sharply was around $4. Today, the price may be $5."
Beyond the deja vu factor, several other market shifts make a demand collapse less likely. Although new cars are becoming more fuel efficient, fewer Americans are buying them, and the average age of a U.S. passenger vehicle is 10 years.
Meanwhile, used U.S. car sales outpaced new car sales by more than 3-to-1 last year, when 11.5 million new light vehicles were sold, down 31 percent from the annual average in the decade before the U.S. economic downturn.
Unlike in 2008, when the U.S. economy was entering a tailspin, employment has been rising, pushing more commuters onto roads and potentially making them less anxious about paying for fuel. Spending at the pump may also be less discretionary. In recent years recreational summertime driving has been making up less of U.S. fuel use.
U.S. gasoline consumption peaked in 2007 and has since fallen 13 percent, or 1.2 million barrels a day on average. But this year, high prices are having only limited demand impact.
Even as pump prices rose over the last four weeks, U.S. retail gasoline sales were off only 1.2 percent from year-ago levels, according to MasterCard.
Perhaps more telling, the clip of the decline appears to be leveling off. MasterCard analyst John Gamel said the firm's surveys have shown smaller declines occurring each week.
Investment bank Morgan Stanley, in research last week, said it has "not seen any material evidence to convince us any (gasoline) demand destruction is taking place in the U.S."
In another gauge of changing perceptions, U.S. media coverage of high oil and gasoline prices has been thin this year compared to 2008, when gasoline's spike was a top story.
The Pew Center, which surveys what's trending in the U.S. media, notes that news content about high fuel prices made up nearly 2 percent of mainstream press coverage in April of 2008, when U.S. retail gasoline prices averaged $3.46 a gallon.
In spite of higher prices last month - gasoline averaged $3.83 a gallon - press coverage was closer to 1 percent of total content.
One caveat from Pew: 2011 has been a year of "mega-stories" in the news, from unrest in the Middle East to Japan's earthquake and ensuing nuclear meltdown.
THE JOBS FACTOR
Joblessness is still keeping millions of commuters off the road. Higher unemployment alone may be dragging down U.S. vehicle miles traveled by 2 percent compared to the end of 2007, according to James Coan at Rice University's Baker Institute in Houston, Texas.
The unemployment rate is actually higher now than it was in 2008. But back then joblessness was getting worse while now it has been improving. Unemployment has fallen to 8.8 percent from a peak of 10.1 percent during 2009.
Workers are not necessarily keeping cars in the garage and flocking onto trains, buses or subways for their commute.
A broad measure of U.S. public transportation usage showed total ridership fell by around 4.5 percent between 2008 and 2010, according to American Public Transportation Association (APTA) data.
Preliminary data for 2011 suggests ridership is rising again, but APTA also says 46 percent of Americans have no access to public transportation. According to the group's estimate, $5 U.S. gasoline would likely lead to a 15 percent increase in public transportation usage.
At U.S. auto plants, 2010 model-year new cars had average fuel efficiency ratings of 32.9 miles per gallon (mpg), up from 31.2 mpg for 2008 models.
General Motors Co. said Tuesday its U.S. new car sales in April jumped 26 percent from a year ago, with more buyers choosing fuel efficient vehicles with smaller engines.
But Americans are buying far fewer cars than they did before the economic downturn, and the average age of U.S. passenger vehicles has risen since then to 10 years.
Car models from 2002 -- the new vehicles of a decade ago -- are on average 11 percent less fuel efficient than 2010 models, according to the U.S. Environmental Protection Agency.
"Not surprisingly since the economy went south in 2008, people are holding onto their vehicles longer," said Robert Sinclair of the American Automobile Association.
Evidence is mounting that as U.S. motorists pay more for fuel, they are cutting back in other areas of discretionary spending.
Safeway Inc., the No. 2 U.S. supermarket operator and a gasoline retailer, said last week that sales of higher-priced fuel boosted first-quarter revenue but cut into gross profit. That dragged down margins for the chain, whose shares are down 4.6 percent since April 27.
The U.S. summer driving season -- from late May to early September -- is often a period of peak world oil demand.
But in recent years, seasonal driving has added less incremental demand. U.S. motorists are spreading fuel usage more evenly, a sign that that demand may be less elastic.
"I've already made as many cuts (in gasoline use) as I can since the last time prices rose," said Allie Irwin, a Chatham, New Jersey resident who drives a Buick sports utility vehicle.
"With my kids' activities and my own responsibilities, I'm just going to have to deal with the higher prices this time, and I'm not happy about it."
(Additional reporting by Bernie Woodall in Detroit; Editing by Jonathan Leff and David Gregorio)
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