Low Gas Prices = Demand Increase

Gas PricesAmericans are celebrating plunging gasoline prices by hitting the roads. After barely rising during the summer months, gasoline demand rose swiftly in September, the American Petroleum Institute said Wednesday. Deliveries of gasoline to U.S. service stations, a proxy for demand, rose more than 4% in September from the same month a year ago. That number was boosted by the comparison with September 2005, when Hurricanes Katrina and Rita interrupted deliveries. But even excluding the hurricane effects, gas demand likely was up approximately 2% in September, API economist Ron Planting says. That’s about triple the average increase over the prior six months and the biggest gain since August 2005.

ยป Source: USA Today

“Lower prices are encouraging people to get back out there and drive,” says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas. Good weather in much of the USA in September and increased security measures at airports, which turned some people off on flying, also likely encouraged travelers to get behind the wheel, Brown says.

In one of the largest one-month changes on record, the nationwide average gasoline price fell 47 cents, or 17%, in September, according to motorist club AAA and the Oil Price Information Service.

The U.S. average for a gallon of regular Wednesday was $2.219, down 27% from this year’s peak of $3.04 a gallon on Aug. 10 and off 52 cents from a year ago. The lowest average price Wednesday was in Missouri, where it was $2.02 a gallon; the highest was in Hawaii, where the average was $2.98.

While the higher prices this year didn’t actually reduce gasoline consumption in most months, it led to slower-than-normal increases in demand. The historical average is for gains of 1.5% to 2%, API’s Planting says.

Population growth, a healthy economy and lower gasoline prices will likely continue to boost gasoline demand going forward, says Kevin Lindemer, head of the energy group at economic consulting firm Global Insight.

“The underlying forces that create gasoline demand are still there,” he says.

But increased demand will keep propping up prices, warns Alliance to Save Energy President Kateri Callahan, who calls the decline in gas prices “not all good news,” because it makes it harder to persuade people to conserve.

“People have a false sense of security that (gasoline prices) are going to stay low and go lower,” Callahan says.

Swati Gunale of Indianapolis has been planning for months to drive to Arkansas this weekend for a volunteer vacation, where she will be helping to build a hiking trail along the Buffalo National River.

Although the 33-year-old would have taken the trip even with gas prices high, the decline in costs at the pump will make her vacation less costly.

“It’s an added bonus for me,” she says.

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One Response to “Low Gas Prices = Demand Increase”

  1. The problem is, it doesn’t work the other way around - high prices don’t reduce demand very much. Check out your own habits and what you will be willing to pay with the Gas Price Calculator at www.EnergyPredicament.com.

    And for a satirical look at Peak Oil, watch:
    http://www.youtube.com/watch?v=FWdbpHDT75g

    Randy Park

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