While signs of relief from the widely reported pain of high gasoline prices are beginning to appear in the US, a crucial factor hasn't eased.
Consumption of gasoline remains strong.
All hints of relief have to do with supply:
- A quota increase by the Organization of Petroleum of Exporting Countries that at least will ratify recent output levels.
- Talk by key OPEC members of raising production capacity and output from capacity now idle.
- The beginning of turnarounds in low US inventories of crude and gasoline.
- Rising US imports of crude and, recently, gasoline.
The market remains anxious, though—and with good reason.
With US inventories and global spare production capacity still low in relation to consumption, and with refineries operating at close to capacity rates in most of the world, any surprise loss of supply would be disruptive.
This threat will moderate whatever price relief may be in store for US motorists. US consumption of gasoline continues to climb nevertheless.
Data from the US Bureau of Economic Analysis help explain why. Spending on gasoline and oil as a share of total personal consumption expenditures has, until recently, been shrinking.
In the 1990s, when the inflation-adjusted gasoline price for all grades averaged $1.26/gal, gasoline and oil represented an average of 2.86% of total personal spending. The trends of both prices and spending shares were both downward. In 2000-02, the gasoline-and-oil spending share steadied near 2.6% despite a surge in gasoline prices in 2000.
Last year, when the average of all gasoline prices rose to $1.60/gal, the spending share fell further to 2.39%.
In the first quarter of this year, when the average gasoline price rose to $1.69/gal, the gasoline-and-oil share of spending finally increased—but only to 2.46%—still well below any year of the 1990s and that decade's average.
An oil-price surge has effects beyond gasoline and its bite out of household budgets, of course. Those effects may yet brake the economy enough to constrain gasoline use.
But price pain alone hasn't yet done the job because the pain, relative to total American spending, isn't what it used to be.
(Online June 4, 2004; author's e-mail: [email protected])
