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Gasoline Demand: Less Inelastic Than Previously Believed

Thursday, September 08, 2005 | 11:38 PM

Guess what happened as Gasoline prices soared last week? We used 4% less than the prior week -- with a travel holiday included:

"Americans used 4% less gasoline amid skyrocketing pump prices last week than they did the week before Hurricane Katrina hit, the federal government reported. But whether that indicates consumers have decided to conserve or merely that they couldn't find all the gasoline they wanted isn't clear.

The figures came amid signs that Katrina's effect on the nation's energy markets will continue to be felt in the weeks and months to come. The Department of Energy's Energy Information Administration said yesterday that stores of gasoline last week fell below the average range for the period, in a time when refineries are running flat-out to meet demand, after the hurricane knocked out Gulf Coast refineries. Meanwhile, the U.S. Coast Guard said yesterday that 52 energy-production platforms in the Gulf of Mexico were missing and 58 were damaged by the hurricane, nearly double the report of missing or damaged platforms Tuesday.

Following weeks in which U.S. gasoline use stood at more than 9.4 million barrels a day, it fell to about nine million barrels in the week ended last Friday, the EIA reported. Use fell by a similar amount compared with the year-earlier period. However, EIA officials cautioned that one week doesn't make a long-term trend."

Predictions for U.S. oil-demand growth for the full year were slashed, according to the EIA, "largely due to higher prices."

This data suggests Americans will reduce oil consumption dramatically -- but only if there is an explicit cost to it. Don't be surprised if some of the more observant members of Congress propose a 50 cent gasoline tax. Its anyone's guess whether the proceeds get earmarked for disaster relief, or for mass transit. But brace yourself, this one may be coming.

Regardless, if the gasoline tax idea gathers momentum, it will have negative repercussions for GM and Ford, but will be a net positive for Honda and Toyota.

My personal view is that the United States dependency on fossil fuels is not a matter of environmental concern, but rather is a national security issue. As long as we are sending 40% of our petrodollars to the Middle East, they will find their way into the bad guys' hands. That's reason enough to want to reduce oil consumption.

UPDATE: September 13, 2005, 7:53am

The WSJ (Page 2) suggests exactly what we are discussing today: Using Taxes to Keep Gasoline Prices High Makes Sense to Some
>

Source:
U.S. Gasoline Use Fell 4% Last Week
By JEFFREY BALL and RUSSELL GOLD
THE WALL STREET JOURNAL, September 9, 2005; Page A13
http://online.wsj.com/article/0,,SB112623039667736175,00.html

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Listed below are links to weblogs that reference Gasoline Demand: Less Inelastic Than Previously Believed:

» Unintended consequences. from larry borsato
The Big Picture thinks that there may be some elasticity in gasoline demand after all:"Americans used 4% less gasoline amid skyrocketing pump prices last week than they did the week before Hurricane Katrina hit, the federal government reported. But whe... [Read More]

Tracked on Sep 9, 2005 6:20:56 PM

» Gasoline demand plummets from Econbrowser
By Monday, oil and gasoline futures prices had given up all of the gain they'd experienced since Katrina. Today we learned that U.S. gasoline demand has plummeted. Both... [Read More]

Tracked on Sep 14, 2005 11:28:37 PM