Gasoline prices stay high, but consumer demand steady

www.abs-cbnnews.com By NEELA BANERJEE The New York Times

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

The Energy Information Administration (EIA), 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 $1.76 a gallon in April. The current average retail price of gasoline is $1.73 a gallon, the Energy Department said.

“At the margin, which is where prices are set, any measurable increase or decrease in demand will have an effect on price,” said Lawrence 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, the 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 overall, as has the number of miles people drive each year, according to David Costello, an analyst with the EIA. And despite the widespread grousing about high fuel prices, when adjusted for inflation, prices are actually lower than they were 20 years ago, Costello said.

“There’s no doubt about it that people are grumbling,” said Scott Hartman, president of the CHR Corp., which owns 51 convenience stores with gas stations around York, Pennsylvania. “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. On Tuesday, 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 February 3.

Analysts and traders said the decreases were impelled by a belief in the oil markets that a war with Iraq would be quick and would result in little damage to oil fields. Other analysts warned that no one could 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 brought Venezuela’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.

With crude oil prices so high and stockpiles so low, consumer demand has proven 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 $2.00 a gallon, now has the most expensive gasoline in the country -- largely because of its environmental regulations. California requires an additive to make cleaner-burning gasoline, ethanol, that constrains how many gallons of gasoline can be wrung from a barrel of oil and complicates the refining process.

But Tom Robinson, chief executive of the Robinson Oil Corp., which is based in San Jose and owns 28 local gas stations, said 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,” Robinson said. “And people know when the price goes up, it will come down.”

Some industry analysts and consumer groups said people might drive less if prices approached $3.00 a gallon or stayed near $2.00 a gallon for an extended period. But others contend that consumers adjust to prices.

“It has been our contention since the 1970s 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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