WASHINGTON -- As average gasoline prices hit a record high of $4.108 per gallon this week, the government released new data showing that drivers have cut back their use of the fuel to levels not seen in five years, reported The Wall Street Journal. The average price of gasoline in the U.S. has been above $4 a regular gallon for more than a month, according to AAA, putting a dent in gasoline demand.
Even through the Fourth of July weekend—a time when Americans traditionally get on the road—gasoline consumption dropped 3.3% from last year to 9.347 million barrels a day, according [image-nocss] to weekly data released by the federal Energy Information Administration (EIA). For the first week of July, that is the least drivers have used since 2003, when consumption was 9.05 million barrels a day.
Meanwhile, supplies of gasoline are building even as refiners produce fewer gallons of the fuel. Stocks of gasoline grew by almost one million barrels from the previous week, well above levels last year. Which means there will be plenty of gas available this summer, experts said. "There is no doubt there are no supply concerns for the next two months," Stephen Schork, president of the oil-and-gas-research firm Schork Group, told the newspaper.
The weaker demand, combined with plentiful gasoline supplies, could eventually lead to lower prices at the pump, the report said. The price for gasoline for August delivery inched up 0.5% to close at $3.3808 per gallon on the New York Mercantile Exchange, while oil-futures prices closed one cent higher at $136.05 per barrel. Still, drivers could be paying today's prices or even higher ones in coming months if there isn't a major pullback in oil prices, Schork warned.
The run-up in oil prices has pushed up gasoline prices by more than 30% since the beginning of the year. At first, consumers cut back only a little on their fuel purchases, but as the year progressed and prices got higher, the size of the cutbacks grew.
In April, gasoline demand was down on average less than 1% from the same month last year; by June, consumption had fallen an average 2.2% from the previous year, according to the federal data. This has made for one of the weakest summer driving seasons in years.
A survey commissioned by Discover Financial Services cited by the Journal found that 62% of respondents are changing their holiday plans because of the higher gasoline prices, while 15% canceled vacations; however, declining U.S. gasoline consumption has done little to deflate gasoline prices at the pump so far. The problem is that demand for other fuels, namely diesel, continues to be strong. This is helping to keep oil prices high, the report said.
In the United States, demand for diesel and similar fuels is up almost 6% from last year. Elsewhere in the world, especially in developing countries such as China, the growth of diesel demand is stronger. "Diesel is going to remain the fuel of choice in transportation," Francisco Blanch, head of global commodity research at Merrill Lynch & Co., told the paper. "We still see strong demand for air travel, for trucking and for trains."
Diesel prices have climbed more than gasoline, gaining 65% to a national average of $4.81 a gallon in the past year, compared with a 38% rise in gasoline, according to the report.'
Analysts expect higher fuel prices eventually to erode demand in emerging economies, as well. There are signs that this is starting to happen as governments reduce the subsidies that had kept fuels inexpensive. But it could take time before oil prices reflect this. "We think oil is set for a significant correction," Michael Waldron, an energy research analyst at Lehman Brothers, told the Journal. "But it's probably not going to occur until the end of this year or the beginning of next year."Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.