Gasoline Prices, Near Record Highs, Don't Reduce Demand

www.nytimes.com By NEELA BANERJEE

Consumers may be complaining mightily about rocketing gasoline prices, but so far they are not buying less, industry experts say. That, in turn, is helping to keep gasoline prices high, given how tight gasoline supplies are now.

The Energy Information Administration, the analytical arm of the Energy Department, predicts that even if crude oil prices decline over the next few months, retail gasoline prices will probably stay high, averaging about $1.76 a gallon in April. The current average retail price of gasoline is $1.73 a gallon, according to the latest Energy Department data.

"At the margin, which is where prices are set, any measurable increase or decrease in demand will have an effect on price," said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. "We're seeing a very slow increase in demand. But if demand is still going to grow, prices will stay high relative to crude oil."

Because of changes in Americans' driving habits over the last decade or so, demand for gasoline changes little, even when prices climb. The vehicles that many people are driving, most notably sport utility vehicles and light trucks, get far lower gas mileage than cars did 20 years ago.

In roughly the same period, the number of drivers has increased over all, as has the number of miles people drive each year, according to David Costello, an analyst with the Energy Information Administration. And despite the widespread complaints about high fuel prices, when adjusted for inflation prices are actually lower than they were at their peak 20 years ago, Mr. Costello said.

"There's no doubt about it that people are grumbling," said Scott Hartman, president of the CHR Corporation, which owns 51 convenience stores with gas stations in the York, Pa., area. "But we don't see any changes in the gallons that they're buying. Actually, we're seeing some nice growth figures."

At its meeting last week in Vienna, the Organization of the Petroleum Exporting Countries argued that a seasonal drop in demand would help keep a lid on crude oil prices, which have stayed over $30 for weeks now. Yesterday, the price of crude oil for April delivery fell $3.26, or 9.3 percent, settling at $31.67 a barrel on the New York Mercantile Exchange.

Gasoline futures followed suit, with the wholesale price of fuel for April delivery falling 6.52 cents, to 96.19 cents a gallon, the lowest end-of-session price since Feb. 3.

Analysts and traders said that the decreases were impelled by a belief in the oil markets that the expected war with Iraq would be quick and would result in little damage to Iraqi oil fields and installations. But other analysts warned that no one can predict what might happen in Iraq. More important, they said, the underlying factors that have driven up crude oil and gasoline prices persist, and an American victory in Iraq would not change them overnight.

OPEC made a series of output reductions last year that buoyed prices and led oil companies and refiners to draw down their inventories of crude oil and petroleum products. In the winter, when companies normally build stocks of gasoline for the spring and summer, supplies of crude oil plummeted after a strike in Venezuela brought the country's oil exports to a halt.

Then, a cold winter in the Northeast and mid-Atlantic motivated refiners to squeeze more heating oil from a barrel of oil, at the expense of gasoline. Now, supplies of crude oil, gasoline and heating oil are at their lowest levels in years.

Demand for petroleum products usually does dip in the second quarter, as OPEC predicted. But demand for crude oil remains unaffected by seasonal changes. And this year, demand could prove even stronger, especially in the United States, as companies scramble to fill stocks in the short time that remains before the main driving season begins in late spring. As a result, oil prices would probably remain volatile, despite price drops in the last few days.

With crude oil prices so high and stockpiles so low, consumer demand has proved to be an important factor in buoying gasoline prices. The question is, How high do prices have to go before car owners change their driving patterns?

California, where prices commonly exceed $2 a gallon, now has the most expensive gasoline in the country — a situation related to its environmental regulations. California requires a certain additive to make cleaner-burning gasoline, called ethanol, that constrains how many gallons of gasoline can be wrung from a barrel of oil and complicates the refining process over all.

But Tom Robinson, chief executive of the Robinson Oil Corporation of San Jose, which owns 28 local gas stations, said that despite their complaints about high gas prices, his customers continued to buy as much gasoline as they did before prices shot up.

"In California, we've had numerous run-ups, and this is the highest so far," he said. "And people know when the price goes up, it will come down. This time, it's been publicized more — the reasons that we have high prices — the war, Venezuela, the problems compounded by our own situation in California."

Some industry analysts and consumer groups said people might drive less if prices approached $3 a gallon or stayed near $2 a gallon for an extended period. But others contend that consumers adjust to prices — mainly because they have to, with driving integral to their lives.

"It has been our contention since the 1970's that consumers really don't change their driving habits on the basis of price," said Geoff Sundstrom, a spokesman for the Automobile Association of America. "They only change due to supply problems. At this point, the tightness in the markets is pretty much invisible to consumers in that they're not going to gas stations that have run out of fuel."

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