Gasoline Demand Weakens '

Prices force motorists to pull back on fuel and discretionary spending

Angel Abcede, Senior Editor/Tobacco, CSP

WASHINGTON, D.C. -- Retailers may already be feeling what the government said is a significant drop in demand for gasoline. Consumer demand—which has grown an average of 1% annually for gasoline over the past six years—is now expected to rise only 0.3% over last year, according to the U.S. Energy Information Administration (EIA), Washington, D.C.

Average demand for the week ending March 14 was 9.071 million barrels per day, down from 9.240 million last year for the week ending March 16.

“[We 've been seeing prices go up] at the wholesale and retail levels,” [image-nocss] David Hogan, COO of Certified Oil Co., Columbus, Ohio, told CSP Daily News. “And we 've seen demand get softer.”

Other studies bolster what Hogan and the federal government document. According to Atlanta-based CNN, out of 1,000 American adults surveyed in the poll conducted March 14-16, 64% said they have made some changes to their driving behavior as a result of higher gas prices. Of that number, 19% reported cutting back on driving enough to have a major effect on their daily lives. The report added that 5% said they stopped driving altogether.

“Last year, the name of the game was supply,” Cathy Duncan, director of product management for refined fuels, DTN, Omaha, Neb., told CSP Daily News. “This year, the question is: Are we going to have enough people to buy gas?”

I a separate report, MasterCard Advisors said this week that U.S. retail gasoline demand dropped over year-ago levels for the eighth week in a row last week, even though demand slightly increased from the previous week.

American motorists pumped an average of 9.189 million barrels per day in the week that ended March 14, an increase of 1.5% from the previous week but 0.9% below the same week last year.

"It's not unusual to see week-to-week increases at this time of year as you come out of winter into spring," said Michael McNamara, vice president of MasterCard Advisors. "What is somewhat unusual is the year-over-year declines that we are continuing to see. ... We think that it still has to do with the higher price thresholds. We're seeing some significant push-back."

MasterCard Advisors estimates retail gasoline demand based on aggregate sales activity in the MasterCard payments system coupled with estimates for all other payment forms.

Retailers have thus far been immune to lags in demand, but apparently, many consumers have passed the tipping point where prices impact behavior. According to the EIA 's weekly report, the price of regular-grade gasoline rose throughout the country, with the U.S. average retail price rising by 5.9 cents to hit a new high of $3.28 per gallon. That number is up by 70.7 cents from last year.

Regionally, the average price on the East Coast reached a new all-time high of $3.25 cents per gallon, passing the previous record set in September 2005. States in the lower Atlantic remained at record highs as well, up 6.3 cents to $3.27 per gallon. Midwest averages rose by 6.1 cents to $3.25 cents per gallon. The average price on the West Coast remained the highest of any region in the country, rising by 6.6 cents to $3.52 cents per gallon. In California, the average price for regular grade jumped by 6.7 cents to $3.60 cents per gallon—48.3 cents above the price a year ago, EIA reported.

“You have to look at business differently today than even last year,” said Duncan. “You have to be smarter on pricing and more in tune to what you 're willing to bare. Are you going to meet the competitors? Are you going to sell at a loss? Are you going to stop selling gas for a while?”

CSP magazine has been exploring the issue of rising crude-oil prices and its effect on the distribution system through continuing coverage that began with the February 2008 cover story. Look for more in upcoming issues of CSP and CSP Independent.

Angel Abcede, CSP/Winsight By Angel Abcede, Senior Editor/Tobacco, CSP
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