Drivers Wary of Lower Gas Prices
Demand still low as economic anxiety and volatile oil prices persist
NEW YORK -- Gasoline prices have seen an extended month-long decline but drivers are not being easily lured back to the road. In the past month, prices are down an average of 25% and are just 7 cents shy of year-earlier levels. But while demand is edging higher, there still appear to be fewer consumers on the road when compared with this time last year.
The national average price of a gallon of gas dropped 3.4 cents to $2.889, according to a survey of credit-card swipes at gasoline stations by motorist group AAA.
The national average gasoline price is now about 30% below [image-nocss] the record-high price of $4.114 on July 17, according to a survey of credit-card swipes at gasoline stations by motorist group AAA. But 15 states are still selling gas at $3 a gallon or more. The highest prices are in Alaska ($3.84) and Hawaii ($3.79) and the lowest are in Oklahoma ($2.46) and Kansas ($2.52), according to a report from CNNMoney.
U.S. gasoline demand rose 2.6% during the week ended Oct. 17, according to the MasterCard Spending Pulse report, which tracks national retail sales.
However, demand levels are down 6.4% from a year ago and are also lower than during the summer months. Last week, 62.9 million barrels were sold at retail locations, compared to 66.9 million barrels that were sold during the same week in July when gasoline prices surged to a record high. One barrel is equivalent to 42 U.S. gallons.
"Statistically, the sharp drop in prices has not resulted in demand recovery, as it has been offset by shrinking home values, 401(k)s and cash in pockets," Ben Brockwell, director of Data, Pricing & Information Services at Oil Price Information Service (OPIS) in Wall, N.J., told CNNMoney. "Additionally, the change has happened so quickly that consumers are wondering if it's real. They're not going to touch the stove if it's not cooled off."
According to Brockwell, gas demand during the work week has stayed relatively steady, up only 0.5% to 1% since prices started to drop more than a month ago. But weekend driving has shown a dramatic decrease, with demand falling 7% to 10% from a year ago.
James Fisher, a professor at St. Louis University and an expert on consumer behavior, agrees that the gloomy economic environment, coupled with unpredictable oil prices, has left consumers wary. "People are skittish about the future of energy prices and they lack confidence in the future of their economic situation, which translates to disciplined spending," he told CNN. "Though they may be pleased to see the price per barrel plunge, they're going to think twice before taking that road trip or using the car get doesn't get good mileage."
Also, habits are hard to break, and now that Americans are in the mindset of consuming less, they're not going to go back to their old ways, according to Kit Yarrow, Department Chair of Psychology at Golden Gate University.
In addition to financial woes, Brockwell believes a surge in the demand for fuel-efficient cars due to recent record-breaking gas prices and a heightened eco-consciousness may also be contributing to fewer sales at gas stations.
"People became mindful of their consumption, but they realized the ramifications of driving more were both financial and ecological," added Yarrow. "Now they've developed this consciousness, they can't just suddenly stop thinking about it."
But gas station owners don't think heightened environmental awareness is the reason for the consumer's reticence at the pump.
"I've seen hybrids, but the conversations with my customers have been more about 401(k)s," said David Johnson of Sunset Service Station in South Weymouth, Mass. "One of my customers this morning was talking about having to buy canned tomatoes; it's really the general economic conditions that have people cutting back."
And the Unites States can expect to see a continuous gasoline-demand decline over the next two to three years due to a combination of higher fuel efficiency, ethanol blending and a push to cut greenhouse gas emissions, Alon USA Energy CEO Jeff Morris said during the 10th annual OPIS National Supply Summit in Las Vegas earlier this week.
Morris said that there would be a push to cut greenhouse gas emissions, regardless of which presidential candidate wins the upcoming election. Barak Obama aims to reduce greenhouse gas emissions by 80%, and John McCain is looking to cut the same emissions by 60% below the levels in 1990s and 66% below levels in 2005. The deadline for both plans is 2050.
Morris also pointed out that the automobile sales trend in the past few years showed a move to smaller and more fuel-efficient cars, according to an OPIS report from the summit. The fuel efficiency in cars is expected to improve by 25% by 2010, but American drivers are not going to drive 25% more miles during that same period, Morris said.