U.S. retail gasoline demand plummeted more than 5 percent last week compared to the same week last year as high gasoline prices kept drivers off the road, MasterCard Advisors said Tuesday.
"We're not seeing the uptick that we've seen seasonally," said Michael McNamara, vice president of research and analysis at MasterCard Advisors.
Summer is the peak driving season in the United States, the world's largest energy consumer, but gasoline demand has slumped this year as gasoline prices have jumped over $4 per gallon.
Demand destruction of 1% per year on an ongoing basis, compared with oil production decline of 5% per year, won’t have a significant impact on the supply-demand equilibrium. Conversely, a year-on-year demand destruction of 5% compared with an oil production decline of 5% does have a significant impact on the supply-demand equilibrium because it negates the impact of the production decline rate....
Note however that if these new developments continue, our situation is currently considerably better than either of these two scenarios since world production is still rising slightly and US demand is off 5%.
The conventional economic wisdom is that our sensitivity to high gasoline prices increases with time so there are substantial declines in demand ahead. Back when oil was around $100 some economists thought that price was enough to reduce demand by 10 - 20% over the next decade. It wouldn't surprise me if it turns out current prices are enough (if they hold) to reduce demand by 25% by 2018.
For the world as whole, a higher price would be required.
Note however that if these new developments continue, our situation is currently considerably better than either of these two scenarios since world production is still rising slightly and US demand is off 5%.
Reported OPEC production is rising slightly. You might want to investigate the accuracy of this data (and the ability to manipulate it) before you munge it...
I do believe that demand is dropping. I'm not sure MasterCard is the source to look to for proof, however.
People may just not be paying with credit cards. Many have had their credit cut off due to fallout from the mortgage crisis. And some gas stations are not taking credit cards any more, forcing customers to pay cash. MasterCard's model may not have caught up with that yet.
MasterCard Advisors estimates retail gasoline demand based on aggregate sales activity in the MasterCard payments system coupled with estimates for all other payment forms.
It looks like this refers to all gasoline purchased, not just credit cards. I don't know how good the data is, but it does seem clear Mastercard is presenting it that way.
I'm just watching from the cheap seats, but wouldn't a more accurate measure be gasoline production (plus imports), averaged over months, etc.? I would think that virtually all such gasoline ends up being used in vehicles...
Mac...I have a good friend that drives a big Kenworth for an exotic auto transport company. We talk a lot and it is usually when he is on the road delivering and picking up autos. I ask him specific questions, like how many large RVs are you now seeing compared to a couple of years ago...ans, very few now. He also reports that several large truck terminals that he once used are now closed, he informed me that 'Loves', a large chain of truck terminals is owned by the Chinese, and he said auto and truck traffic is way off in most areas. All this is anecdotal info but if his observations are correct, and I have no reason to doubt him, then it reinforces the data that demand for fuel is down somewhat. One thing that he said recently is that his company is now having fewer requests for auto transport and that his company has cut mileage compensation for all it's drivers. Iow, he has taken a pay cut recently.
The auto transport co owns 32 rigs and their biz is down. My friend suggested that the company might not survive untill Sept. Most of their customer base are wealthy auto collectors that compete in auto shows or rich people hauling their $500K - $Many Millions exotic sports cars south in winter and north is summer...seems even the wealthy are cutting back somewhat.
"Most of their customer base are wealthy auto collectors that compete in auto shows or rich people hauling their $500K - $Many Millions exotic sports cars south in winter and north is summer...seems even the wealthy are cutting back somewhat."
Nooooo!! Oh, the (well heeled) humanity! What's next? Substituting French's for Grey Poupon? Buying suits at Macy's instead of Brooks Brothers? Wha-wha-what will the children think??
Get this indicator though: I saw a guy the other day going to great pains to look nonchalant while filling his full size Hummer. It must have been killing him, but he wasn't going to let it show! I wonder if a forensic expert would be able to find bits of forehead flesh on his steering wheel?
LOL!
Come to think of it I have heard Large SUV owners field a few remarks in recent weeks while filling up.
Nothing mean, more along the lines of sympathy,"Dude, thats gotta hurt".
At least its not as bad as it was in the predigital pump days when the pump would "ding" at every 10c increment.(I believe that was for the benefit of the gas station attendant(me) who would come running to top it off once the sound stopped)
No way to hide it then!
or maybe, more people are paying WITH master card because they ran out of cash. that maxed out credit stereotype does not apply to everyone. i happen to believe that demand is dropping, based on antecdotal evidence, and the fact that i personally have cut down. not because i have to, but because i live below my means.
if one takes a look at the period 1979 to 1984, 5 yrs, there was a lot less demand, so it didnt happen overnight.
> Many have had their credit cut off due to fallout from the mortgage crisis.
MC would filter for people who had a cc back then and still have today.
About the same correction that a.o. WalMart makes when they publish their earnings: Increase/decline of sales for shops open more than 12 months (existing stores)
So I would be surprised if they would fall for that.
People still have their credit cards. So far as I know, nobody's has actually been revoked.
Instead, what has happened is that their limits have been lowered (because their house is worth less). So they have the card, but they can't charge anything on it. Or have to be more careful what they charge.
There are also gas stations that have started refusing all credit card purchases. The fees charged have risen along with gas prices, and with their razor-thin profit margins, many can't afford to take credit cards any more.
Another factor is that many debt advisors will suggest, when they think at least part of the debt is due to people not "really" realising the level of their spending (rather than entirely due to dramatic external circumstances), that people use cash in all cases so they can "see" the money they're spending.
Our (Khebab/Brown) middle case is that in 2018 combined net oil exports from the current top five net oil exporters will have fallen by about half from their 2005 peak--from about 24 mbpd to about 12 mbpd. And by 2018, our current #3 source of imported crude oil, Mexico, will probably be as much eight years into net importer status. So, I agree that we are looking at lower consumption in importing countries.
Of course, Saudi Arabia has shown a rebound, to an annual level which will almost certainly be below their 2005 annual rate (while their consumption is on track to double every 10 years), but Russia has resumed its production decline. In any case, simply extrapolating this volumetric decline out puts the current top five at about 13 mbpd in 2018.
I gather that the statistics you cite are for the Master Card payment system. Is it possible that part of the fall is due to more people paying for fuel with cash now? - I read recently that discounts were being offered in the US for cash purchases. According to the article, year-to-date demand has dropped 2.18 percent compared with last year, so demand would have to fall quite a bit to get a 5 percent decline for this year. But I expect a great deal of demand in the US has been for non-essential personal transport and it can drop 10 percent with relatively little pain. Guess we'll find out when prices hit upwards of $10 per gallon.
Consumers used to buy small cars for a simple reason: they were cheap. A decade ago, many budget-minded shoppers turned down even options like air-conditioning, power windows and compact disc players to keep the price low.
Now people of all income levels are buying small cars to pinch pennies at the gas pump, but they are not scrimping on creature comforts. Instead, they are spending hundreds or even thousands of dollars on options, like heated leather seats and high-end entertainment systems, usually found in luxury cars.
That is adding up to some rare good news for Detroit automakers, which have long had trouble earning a profit on small cars.
Take a look at the graph below entitled "Small car sales as share of all vehicles" (from the article).
The change in trend actually began to occur several years back. The automaker's own data was telling them a major shift toward small vehicles was in the works. One less excuse for being caught napping.
This is a very good article - Just because a car is small and fuel efficient, it does not need to be spartan. Most luxuries like moonroof and leather upholstery ought not to have any effect on fuel economy.
Trading down from a 20mpg SUV to a 33mpg compact will save about $1,500 at the gas pump over 20,000 miles. Assuming the owner takes an extra hit against the resale price of the SUV, because the dealers don't want them, and is therefore already a couple of thousand down before buying their compact, maybe it's best not to go too crazy on leather and high end ICE.
And don't those charts show that transaction prices in the two segments are flat or falling since the credit crunch got going last year?
Maybe the story was artfully placed by Detroit? Still singing that old song by Blondie. "One way or another we're gonna getcha, getcha, getcha."
Leather seats (heated of course), surround sound stereo, sun roof, power everything, and, best of all, a 54MPG diesel engine. I do enjoy my creature comforts. Best of all, the VW new Beetle has a place on the dash board for for the flowers! Driving like Grandma to get that mileage figure, though....
Funny, over the past year, most certainly over the past four months, I've noticed that only about 1/4 of the cars are now passing me, whereas in the past it was more like 7/8 or better -- especially at the stop lights.
Now, if only the EROI on Bio-Diesel was better, I would consider switching.
To some extent what the Prius offered Americans was their first chance to buy a fuel-efficient car that has lots of fancy features and costs a lot of money (and has some sort of status-symbol status), rather than a car that gets good gas mileage as a side-effect of being small and cheap and devoid of luxury goodies (and is obviously cheap and 'low-status'). You need only glance at the road to see that most vehicles are not sold on the basis of being the cheapest possible option determined by strictly rational financial calculation. Not too surprising that with some financial push for better fuel economy and some fashion change from 'I'd look cool in a pickup' to 'I'd look foolish in a pickup' people are buying fully-loaded minis and whatnot. Not to mention manufacturer push to make the higher-profit option-laden versions of the now-hot models. Just try to get a base-model Prius.
One really interesting part of that article is the last paragraph:
“I’ve never seen anything like it,” Mr. Smith said. “You don’t have too many people saying, ‘It has to be white with a power package and it has to have Michelin tires.’ Instead it’s, ‘What do you have and can I get it by the end of the month? Just get me out of my Tahoe.’”
Most Americans can technically afford $4, $5 gas. They could just give up something else and keep guzzling.
But for many that choice increasingly starts to really really suck because they see money going up in smoke that could be spent elsewhere. If you get rid of your Tahoe, you instantly see the savings at the pump.
If you spend less money on gas, you will have more money for other things. That's why I think the term "demand destruction" is a bit overdone. For most Americans, lowering your demand for gas means increasing it for other things.
How long are the lines at Disneyland this summer? I know we did not get a season pass to Sea World (as we've done for a couple of years) because six hours in the car to buy overpriced drinks and pay to park is just too much.
Bingo! And even if diesel demand is down in the US, it is still rising in the rest of the world as a whole. Now, it may slow as the US-induced financial mess spreads to the rest of the world, but it will affect countries with strong currencies less, and it will affect oil exporters less still (and I'd include Brazil in that, even though it is a marginal importer).
But, the decision of the refiner to buy (bid up the price of) an extra increment of oil depends on his overall expected profit from selling the basket of products. If the price of gasoline goes down, he has to get more for the diesel (and other products) he sells, or else his profit deteriorates. Every product in the mix affects the price he is willing to pay for oil. If demand for gasoline decreases, the expectation would be that diesel and other oil products go up somewhat in price, and oil demand decreases somewhat. This assumes of course there there is some demand elasticity for these other products.
It does seem like we're seeing some demand destruction, but there are three critical points to keep in mind:
1. Is the demand destruction accelerating? Let's assume for a moment that the MasterCard figures are accurate (unknown): their June 15th figures show a 5% decline from the same point last year, whereas their April 8th figures showed a 6.8% decline from the same point last year. That means that, according to MasterCard's figures, gasoline consumption rose faster this year than last year between April and June.
2. Global demand destruction is the more relevant question. If US demand destruction continues at 5% or even 10% per year, but global demand continues to grow, we're in trouble. It's simply unknown at this point whether global demand can continue to grow, whether China and India have self-sustaining consumer middle classes or not, and how hard an economic slowdown in the US will affect their demand figures. I wrote about this here. Recent figures are cause for alarm: China June auto sales up 15% year on year, India May sales up 14% year on year.
3. We pick the low-hanging fruit first. There is lots of "easy" to eliminate demand in the US. Buy a more efficient car, drive the more efficient of two cars on longer trips, skip the Summer road trip, combine errands, etc. When people need to reduce consumption, they eliminate the easiest and most painless consumption first. Therefore, the next marginal amount of consumption they need to eliminate will be more difficult. Demand inelasticity increases as demand destruction progresses. I have no doubt that the US can destroy 10% or 20% of demand fairly easily. But continuing a 5% rate of demand destruction over time will become increasingly difficult. I'm not saying it won't happen, but that one of two things will be required to make it happen: steadily increasing oil prices, or steadily declining economic situation. Given a choice, we should hope for the former.
The Hairless Prophet of Doom on CNN this morning was all smiles, because of the drop in oil prices. The anchors weren't impressed, though. One of them said, "It's because the economy's collapsing!!!!!"
Naw....Happy days are here again, oil is down $10 in two days - Market up 400+.
Time to go to the beach and have some fun.
Seriously.....
Ladies and gentleman, prepare yourselves for WW 3.
Perhaps within a year.
This is the last gasp for the economy before the bottom falls out and the rug gets pulled out on the majority of people who are up to their eyeballs in debt.
This is nothing new - ala 1929.
The difference between then and now, however, is the world moves at such a frenetic pace events will happen so fast it will make your head spin.
Hardly anyone noticed when deregulation was taking place in Wall Street during the Clinton Administration, and few understood the significance of the abrogation of the Smoot Hawley Act and the consequences this would have on the average person.
Most thought it was a great opportunity and that they would all become millionaires through Wall Street investing - not realizing that a trap was being set for them and All of the Banks involved.
The trap is about to be sprung.
Watch carefully Sept. 2008 - Feb. 2009.
Collapse and depression may seem mild by comparison.Do not run with the multitude to do iniquity.
I have no doubt that the US can destroy 10% or 20% of demand fairly easily. But continuing a 5% rate of demand destruction over time will become increasingly difficult. I'm not saying it won't happen, but that one of two things will be required to make it happen: steadily increasing oil prices, or steadily declining economic situation.
What do you call a 14x price increase in a decade?
I guess I'd call it a 14x price increase. I'm not sure of the relevance, though. 14x price increase has been sufficient to destroy whatever demand has been destroyed to date, but doesn't really pertain to whether we'll see future demand destruction, nor whether that future demand destruction will be due to steadily increasing prices a steadily declining economy. I'd guess that another 14x price increase over the next decade will create a significant level of demand destruction, but how much is anyone's guess. There are plenty of guestimates about the demand (in)elasticity for oil, some even cited in this Drumbeat, but all of those are just that--guesses. They're based on past changes in demand due to past changes in price, and fail to recognize that both elasticity and demand destruction are marginal issues not controlled by a linear, or even knowable non-linear rate of change. The one thing that I think we can say with some confidence is that inelasticity increases as demand destruction progresses...
14x price increase has been sufficient to destroy whatever demand has been destroyed to date, but doesn't really pertain to whether we'll see future demand destruction, nor whether that future demand destruction will be due to steadily increasing prices a steadily declining economy.
That's a surprising assertion to me.
Wouldn't you say that it's pretty much impossible for an increase of an order of magnitude in the price of oil not to have continuing effects? Are you implying that we have already seen all the adjustments that stem from this new higher oil price?
Given that every $10 increase in the price of oil extracts $76B from the U.S. economy, in my view we're just at the beginning of seeing the economy attempt to adjust to this new higher price. There is a lag in the system. We haven't even seen a major domestic car manufacturer go under, nor a major airline, although I am certain that we will see at least one of each going bankrupt and being liquidated "soon."
Yeh, but the right wing chorus eveywhere is in unison chanting that the recent price decreases are due to Bush's announcement about drilling. The icing on the cake would be if the congress folded. When people see this reflected at the pump they will think, well, the storm is over, it's safe to consume, consume, consume again. Forget that idea we had about trading in our SUV, etc. they will think. The power of wishful thinking will prevail. Besides, demand destruction was pretty pathetic anyway given the magnitude of the increases. Yes, Bush is right. Psychology matters. Unfortunately, his chanting will have the reverse effect, people will start increasing their consumption based on the belief that future drilling has magically solved the problem.
Maybe I am biased by seeing SUV after truck after SUV on the tourist highway that goes through my town.
"Wouldn't you say that it's pretty much impossible for an increase of an order of magnitude in the price of oil not to have continuing effects?"
Surely we can expect some delayed effects such as shifts over time to higher MPG cars, so the assertion is indeed too strong. But I find it strange that people are shocked, just shocked mind you, that the price rise so far has affected demand so little. Try it on this way:
Non-transportation uses of oil are generally pretty valuable. Another $1 for a computer monitor is beneath notice. So unless we're analyzing minutiae at book length, let's ignore such uses. Heating oil is a serious issue for a few, but it has become a very small use. So to understand demand we need to look at transportation. And it takes us to a big problem.
Too many TOD posters can't grasp transportation demand because they stubbornly insist on taking the value of time to be zero, at least implicitly. In the real world, it simply isn't so. With a 30mpg car, going from $1.50 to $4.50 raises the cost of driving by a whole whopping gigantic enormous unbearable world-ending unfair ten cents a mile. Not nearly enough to justify squandering 90-120 minutes on the bus to do a 20-minute trip. Not even close. Not even in the same universe.
Now, add another $10 to the cost of that trip, and the story may start to
The decline in US demand for gasoline is now quite signifigant (down 5% last week) .....
Retail gasoline demand drops: MasterCard
A couple of months ago, TOD ran an article asking "Where is the demand destruction?".
To quote a section near the end of that piece:
Note however that if these new developments continue, our situation is currently considerably better than either of these two scenarios since world production is still rising slightly and US demand is off 5%.
The conventional economic wisdom is that our sensitivity to high gasoline prices increases with time so there are substantial declines in demand ahead. Back when oil was around $100 some economists thought that price was enough to reduce demand by 10 - 20% over the next decade. It wouldn't surprise me if it turns out current prices are enough (if they hold) to reduce demand by 25% by 2018.
For the world as whole, a higher price would be required.
Reported OPEC production is rising slightly. You might want to investigate the accuracy of this data (and the ability to manipulate it) before you munge it...
I do believe that demand is dropping. I'm not sure MasterCard is the source to look to for proof, however.
People may just not be paying with credit cards. Many have had their credit cut off due to fallout from the mortgage crisis. And some gas stations are not taking credit cards any more, forcing customers to pay cash. MasterCard's model may not have caught up with that yet.
MasterCard Advisors estimates retail gasoline demand based on aggregate sales activity in the MasterCard payments system coupled with estimates for all other payment forms.
It looks like this refers to all gasoline purchased, not just credit cards. I don't know how good the data is, but it does seem clear Mastercard is presenting it that way.
I know, but I question whether their model is accurate, given the recent changes I mentioned.
I'm just watching from the cheap seats, but wouldn't a more accurate measure be gasoline production (plus imports), averaged over months, etc.? I would think that virtually all such gasoline ends up being used in vehicles...
Is that showing a downward trend?
For the last three months or so I've seen it.
when I fill up. and I always fill up now, I look at the other pumps.
The prices are always, $10, $15, $20.
The diesel $15, $20, or $154 (guess they've got a job
or run to make).
Demand Destruction is Economic Destruction.
Robert Rapier's trip from Wyoming to Texas very illuminating.
Mac...I have a good friend that drives a big Kenworth for an exotic auto transport company. We talk a lot and it is usually when he is on the road delivering and picking up autos. I ask him specific questions, like how many large RVs are you now seeing compared to a couple of years ago...ans, very few now. He also reports that several large truck terminals that he once used are now closed, he informed me that 'Loves', a large chain of truck terminals is owned by the Chinese, and he said auto and truck traffic is way off in most areas. All this is anecdotal info but if his observations are correct, and I have no reason to doubt him, then it reinforces the data that demand for fuel is down somewhat. One thing that he said recently is that his company is now having fewer requests for auto transport and that his company has cut mileage compensation for all it's drivers. Iow, he has taken a pay cut recently.
The auto transport co owns 32 rigs and their biz is down. My friend suggested that the company might not survive untill Sept. Most of their customer base are wealthy auto collectors that compete in auto shows or rich people hauling their $500K - $Many Millions exotic sports cars south in winter and north is summer...seems even the wealthy are cutting back somewhat.
"Most of their customer base are wealthy auto collectors that compete in auto shows or rich people hauling their $500K - $Many Millions exotic sports cars south in winter and north is summer...seems even the wealthy are cutting back somewhat."
Nooooo!! Oh, the (well heeled) humanity! What's next? Substituting French's for Grey Poupon? Buying suits at Macy's instead of Brooks Brothers? Wha-wha-what will the children think??
Get this indicator though: I saw a guy the other day going to great pains to look nonchalant while filling his full size Hummer. It must have been killing him, but he wasn't going to let it show! I wonder if a forensic expert would be able to find bits of forehead flesh on his steering wheel?
LOL!
Come to think of it I have heard Large SUV owners field a few remarks in recent weeks while filling up.
Nothing mean, more along the lines of sympathy,"Dude, thats gotta hurt".
At least its not as bad as it was in the predigital pump days when the pump would "ding" at every 10c increment.(I believe that was for the benefit of the gas station attendant(me) who would come running to top it off once the sound stopped)
No way to hide it then!
or maybe, more people are paying WITH master card because they ran out of cash. that maxed out credit stereotype does not apply to everyone. i happen to believe that demand is dropping, based on antecdotal evidence, and the fact that i personally have cut down. not because i have to, but because i live below my means.
if one takes a look at the period 1979 to 1984, 5 yrs, there was a lot less demand, so it didnt happen overnight.
Leanan,
> Many have had their credit cut off due to fallout from the mortgage crisis.
MC would filter for people who had a cc back then and still have today.
About the same correction that a.o. WalMart makes when they publish their earnings: Increase/decline of sales for shops open more than 12 months (existing stores)
So I would be surprised if they would fall for that.
People still have their credit cards. So far as I know, nobody's has actually been revoked.
Instead, what has happened is that their limits have been lowered (because their house is worth less). So they have the card, but they can't charge anything on it. Or have to be more careful what they charge.
There are also gas stations that have started refusing all credit card purchases. The fees charged have risen along with gas prices, and with their razor-thin profit margins, many can't afford to take credit cards any more.
Another factor is that many debt advisors will suggest, when they think at least part of the debt is due to people not "really" realising the level of their spending (rather than entirely due to dramatic external circumstances), that people use cash in all cases so they can "see" the money they're spending.
We have gone from 75%Ccards/25%cash to the reverse.
Seeing lots of tatty bills and old coins.
People are spending more time digging through pockets, wallets, purses to get the right change instead of just giving in and slapping a card on it.
Also the CC processor company has announced no more discounts and future rate hike.
Our (Khebab/Brown) middle case is that in 2018 combined net oil exports from the current top five net oil exporters will have fallen by about half from their 2005 peak--from about 24 mbpd to about 12 mbpd. And by 2018, our current #3 source of imported crude oil, Mexico, will probably be as much eight years into net importer status. So, I agree that we are looking at lower consumption in importing countries.
The EIA top five net oil export numbers so far:
2005: 23.8 mbpd
2006: 23.0 (-3.4%/year)
2007: 22.1 (-4.0%/year)
Of course, Saudi Arabia has shown a rebound, to an annual level which will almost certainly be below their 2005 annual rate (while their consumption is on track to double every 10 years), but Russia has resumed its production decline. In any case, simply extrapolating this volumetric decline out puts the current top five at about 13 mbpd in 2018.
Hi Datamunger,
I gather that the statistics you cite are for the Master Card payment system. Is it possible that part of the fall is due to more people paying for fuel with cash now? - I read recently that discounts were being offered in the US for cash purchases. According to the article, year-to-date demand has dropped 2.18 percent compared with last year, so demand would have to fall quite a bit to get a 5 percent decline for this year. But I expect a great deal of demand in the US has been for non-essential personal transport and it can drop 10 percent with relatively little pain. Guess we'll find out when prices hit upwards of $10 per gallon.
People are pimping their new smaller rides:
From the New York Times:
Car Buyers Downsize, but Spend Big on Options
Take a look at the graph below entitled "Small car sales as share of all vehicles" (from the article).
The change in trend actually began to occur several years back. The automaker's own data was telling them a major shift toward small vehicles was in the works. One less excuse for being caught napping.
This is a very good article - Just because a car is small and fuel efficient, it does not need to be spartan. Most luxuries like moonroof and leather upholstery ought not to have any effect on fuel economy.
why the nob do septics call it a 'moonroof' ... does it let in the moonshine ? You know it's a sunroof, twits.
Usually a moonroof refers to a sunroof with a built in glass panel so you can get light in from above without getting blown around.
I call mine a rainroof.
mine always leaked.
Trading down from a 20mpg SUV to a 33mpg compact will save about $1,500 at the gas pump over 20,000 miles. Assuming the owner takes an extra hit against the resale price of the SUV, because the dealers don't want them, and is therefore already a couple of thousand down before buying their compact, maybe it's best not to go too crazy on leather and high end ICE.
And don't those charts show that transaction prices in the two segments are flat or falling since the credit crunch got going last year?
Maybe the story was artfully placed by Detroit? Still singing that old song by Blondie. "One way or another we're gonna getcha, getcha, getcha."
Why do you call it "Trading down"?
Leather seats (heated of course), surround sound stereo, sun roof, power everything, and, best of all, a 54MPG diesel engine. I do enjoy my creature comforts. Best of all, the VW new Beetle has a place on the dash board for for the flowers! Driving like Grandma to get that mileage figure, though....
Funny, over the past year, most certainly over the past four months, I've noticed that only about 1/4 of the cars are now passing me, whereas in the past it was more like 7/8 or better -- especially at the stop lights.
Now, if only the EROI on Bio-Diesel was better, I would consider switching.
To some extent what the Prius offered Americans was their first chance to buy a fuel-efficient car that has lots of fancy features and costs a lot of money (and has some sort of status-symbol status), rather than a car that gets good gas mileage as a side-effect of being small and cheap and devoid of luxury goodies (and is obviously cheap and 'low-status'). You need only glance at the road to see that most vehicles are not sold on the basis of being the cheapest possible option determined by strictly rational financial calculation. Not too surprising that with some financial push for better fuel economy and some fashion change from 'I'd look cool in a pickup' to 'I'd look foolish in a pickup' people are buying fully-loaded minis and whatnot. Not to mention manufacturer push to make the higher-profit option-laden versions of the now-hot models. Just try to get a base-model Prius.
One really interesting part of that article is the last paragraph:
Most Americans can technically afford $4, $5 gas. They could just give up something else and keep guzzling.
But for many that choice increasingly starts to really really suck because they see money going up in smoke that could be spent elsewhere. If you get rid of your Tahoe, you instantly see the savings at the pump.
If you spend less money on gas, you will have more money for other things. That's why I think the term "demand destruction" is a bit overdone. For most Americans, lowering your demand for gas means increasing it for other things.
How long are the lines at Disneyland this summer? I know we did not get a season pass to Sea World (as we've done for a couple of years) because six hours in the car to buy overpriced drinks and pay to park is just too much.
If your interest is in oil prices, gasoline demand doesn't really matter right now. Gasoline is not what is driving oil prices.
Diesel is what's driving oil prices, and diesel supply remains a problem in most of the world.
Bingo! And even if diesel demand is down in the US, it is still rising in the rest of the world as a whole. Now, it may slow as the US-induced financial mess spreads to the rest of the world, but it will affect countries with strong currencies less, and it will affect oil exporters less still (and I'd include Brazil in that, even though it is a marginal importer).
But, the decision of the refiner to buy (bid up the price of) an extra increment of oil depends on his overall expected profit from selling the basket of products. If the price of gasoline goes down, he has to get more for the diesel (and other products) he sells, or else his profit deteriorates. Every product in the mix affects the price he is willing to pay for oil. If demand for gasoline decreases, the expectation would be that diesel and other oil products go up somewhat in price, and oil demand decreases somewhat. This assumes of course there there is some demand elasticity for these other products.
It does seem like we're seeing some demand destruction, but there are three critical points to keep in mind:
1. Is the demand destruction accelerating? Let's assume for a moment that the MasterCard figures are accurate (unknown): their June 15th figures show a 5% decline from the same point last year, whereas their April 8th figures showed a 6.8% decline from the same point last year. That means that, according to MasterCard's figures, gasoline consumption rose faster this year than last year between April and June.
2. Global demand destruction is the more relevant question. If US demand destruction continues at 5% or even 10% per year, but global demand continues to grow, we're in trouble. It's simply unknown at this point whether global demand can continue to grow, whether China and India have self-sustaining consumer middle classes or not, and how hard an economic slowdown in the US will affect their demand figures. I wrote about this here. Recent figures are cause for alarm: China June auto sales up 15% year on year, India May sales up 14% year on year.
3. We pick the low-hanging fruit first. There is lots of "easy" to eliminate demand in the US. Buy a more efficient car, drive the more efficient of two cars on longer trips, skip the Summer road trip, combine errands, etc. When people need to reduce consumption, they eliminate the easiest and most painless consumption first. Therefore, the next marginal amount of consumption they need to eliminate will be more difficult. Demand inelasticity increases as demand destruction progresses. I have no doubt that the US can destroy 10% or 20% of demand fairly easily. But continuing a 5% rate of demand destruction over time will become increasingly difficult. I'm not saying it won't happen, but that one of two things will be required to make it happen: steadily increasing oil prices, or steadily declining economic situation. Given a choice, we should hope for the former.
The Hairless Prophet of Doom on CNN this morning was all smiles, because of the drop in oil prices. The anchors weren't impressed, though. One of them said, "It's because the economy's collapsing!!!!!"
Naw....Happy days are here again, oil is down $10 in two days - Market up 400+.
Time to go to the beach and have some fun.
Seriously.....
Ladies and gentleman, prepare yourselves for WW 3.
Perhaps within a year.
This is the last gasp for the economy before the bottom falls out and the rug gets pulled out on the majority of people who are up to their eyeballs in debt.
This is nothing new - ala 1929.
The difference between then and now, however, is the world moves at such a frenetic pace events will happen so fast it will make your head spin.
Hardly anyone noticed when deregulation was taking place in Wall Street during the Clinton Administration, and few understood the significance of the abrogation of the Smoot Hawley Act and the consequences this would have on the average person.
Most thought it was a great opportunity and that they would all become millionaires through Wall Street investing - not realizing that a trap was being set for them and All of the Banks involved.
The trap is about to be sprung.
Watch carefully Sept. 2008 - Feb. 2009.
Collapse and depression may seem mild by comparison.Do not run with the multitude to do iniquity.
What do you call a 14x price increase in a decade?
I guess I'd call it a 14x price increase. I'm not sure of the relevance, though. 14x price increase has been sufficient to destroy whatever demand has been destroyed to date, but doesn't really pertain to whether we'll see future demand destruction, nor whether that future demand destruction will be due to steadily increasing prices a steadily declining economy. I'd guess that another 14x price increase over the next decade will create a significant level of demand destruction, but how much is anyone's guess. There are plenty of guestimates about the demand (in)elasticity for oil, some even cited in this Drumbeat, but all of those are just that--guesses. They're based on past changes in demand due to past changes in price, and fail to recognize that both elasticity and demand destruction are marginal issues not controlled by a linear, or even knowable non-linear rate of change. The one thing that I think we can say with some confidence is that inelasticity increases as demand destruction progresses...
That's a surprising assertion to me.
Wouldn't you say that it's pretty much impossible for an increase of an order of magnitude in the price of oil not to have continuing effects? Are you implying that we have already seen all the adjustments that stem from this new higher oil price?
Given that every $10 increase in the price of oil extracts $76B from the U.S. economy, in my view we're just at the beginning of seeing the economy attempt to adjust to this new higher price. There is a lag in the system. We haven't even seen a major domestic car manufacturer go under, nor a major airline, although I am certain that we will see at least one of each going bankrupt and being liquidated "soon."
-André
Yeh, but the right wing chorus eveywhere is in unison chanting that the recent price decreases are due to Bush's announcement about drilling. The icing on the cake would be if the congress folded. When people see this reflected at the pump they will think, well, the storm is over, it's safe to consume, consume, consume again. Forget that idea we had about trading in our SUV, etc. they will think. The power of wishful thinking will prevail. Besides, demand destruction was pretty pathetic anyway given the magnitude of the increases. Yes, Bush is right. Psychology matters. Unfortunately, his chanting will have the reverse effect, people will start increasing their consumption based on the belief that future drilling has magically solved the problem.
Maybe I am biased by seeing SUV after truck after SUV on the tourist highway that goes through my town.
"Wouldn't you say that it's pretty much impossible for an increase of an order of magnitude in the price of oil not to have continuing effects?"
Surely we can expect some delayed effects such as shifts over time to higher MPG cars, so the assertion is indeed too strong. But I find it strange that people are shocked, just shocked mind you, that the price rise so far has affected demand so little. Try it on this way:
Non-transportation uses of oil are generally pretty valuable. Another $1 for a computer monitor is beneath notice. So unless we're analyzing minutiae at book length, let's ignore such uses. Heating oil is a serious issue for a few, but it has become a very small use. So to understand demand we need to look at transportation. And it takes us to a big problem.
Too many TOD posters can't grasp transportation demand because they stubbornly insist on taking the value of time to be zero, at least implicitly. In the real world, it simply isn't so. With a 30mpg car, going from $1.50 to $4.50 raises the cost of driving by a whole whopping gigantic enormous unbearable world-ending unfair ten cents a mile. Not nearly enough to justify squandering 90-120 minutes on the bus to do a 20-minute trip. Not even close. Not even in the same universe.
Now, add another $10 to the cost of that trip, and the story may start to