Demand for Gasoline May Be Relatively Price Inelastic But Eventually....
Ronald Bailey | April 24, 2008, 4:02pm
Businessweek reports that Americans appear to be burning less gasoline as a result of driving less. To wit:
Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration (EIA) is predicting gas consumption will actually fall 0.3% this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show. "Our canaries out there tell us they are seeing demand drop much more considerably than the fraction the EIA is talking about," says Tom Kloza, chief oil analyst at Oil Price Information Service, a market research firm in Gaithersburg, Md.
Back in 2005, Goldman Sachs issued a report that suggested that demand for gasoline was not so much tied to price per gallon as percentage of income. As Reuters reported:
During 1980-1981, gasoline spending in the United States corresponded to an average 4.5 percent of GDP, 7.2 percent of consumer expenditures, and 6.2 percent of personal disposable income.
The report added that at around $100 per barrel for oil, gasoline spending in the U.S. reaches 3.6 percent of forecasted GDP, 5.3 percent of consumer expenditures, and 5.0 percent of personal disposable income. Still not as high at the bad old days of the 1970s and early 1980s.
The Goldman Sachs report also suggested that the price of oil might have to reach $135 per barrel before consumer expenditures on gasoline as a percent of income would reach levels comparable to the 1970s. Yesterday, the price was north of $118 per barrel.
According to Reuters Goldman Sachs' researchers concluded:
``Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.
``Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon.''
The Businessweek article notes:
Just look at the latest auto sales figures. Sales fell 8% overall during the first quarter of 2008, and those of gas-guzzling large SUVs and pickup trucks dropped off a cliff, down 27% and 14%, respectively.
Whole informative Businessweek article is here.
Jay | April 25, 2008, 12:50pm | #
Ronald: When considering the format of these blog posts with the quotations clearly defined by vertical lines on the left edge of the paragraphs, you could probably shorthand it with only a colon (as you do throughout most of the article anyway). For example, "Businessweek reports that Americans appear to be burning less gasoline as a result of driving less:"
You've covered your bases there, I feel.
Other options to consider:
--[He, They,] wrote: (some journalists and news editors prefer to use present tense for quotations, e.g. "He writes:", but that's a matter of style for the effect of immediacy. I prefer past tense for its accuracy. Either is correct. But some will say to avoid using these constructions to introduce quotations - you cannot please everyone!)
--Consider: (or Consider the following:)
--An excerpt:
--Check this out, dudes: :)
--Voila: (unsure about this one ... could be a style choice. Nothing like a little French to liven up a post, eh?)
I don't know ... maybe there's a good Latin alternative as well.
Anyway, I was only pointing out a crutch phrase you use; I have roughly a half-billion of my own, too. I like it when mine are pointed out. I'm unsure if "That is to say" is appropriate for introducing long quotations, though.
Well, good luck. I won't harp on you for it again. :) Keep writing fab articles.
John D | April 26, 2008, 4:12am | #
If you appreciate irony, or just want a laugh, go over to Youtube where the Democrats have put up clips of their members making speeches on the floor of the House demanding LOWER gas prices.
They have some suggestions, like...removing all tax exemptions from the oil industry and making it more expensive to find new oil. (Not that they would allow it to be pumped).
Yeah, I'm no fan of subsidies, but I'm not clear on how making it more expensive to do business will result in lower prices. But then, I'm not a Congressman.
Speaking of which....
My Congressman, Peter DeFazio (D-Labor Unions), also wants to file a complaint against OPEC with the WTO. I'm not sure what exactly he expects the WTO, which has no enforcement powers, to do. But it shows the Democrat's overwhelming faith in the power of bureaucracy.
As does the third suggestion he had.... [drumroll please]..... Increased government regulation!!!
The exact same remedy that has been pushed by the Democrats for every other problem.
Tax and regulate....It doesn't matter what the problem is supposed to be, you can depend on the Democrats to push for these two solutions.
The sad thing is, there are actually people out there that will watch that, nod their heads and say, "that sounds like a good idea to me."
