With the official start of the summer driving season just a week away, US drivers are faced with the most expensive gasoline in history. Recent price trends have changed the behavior of the typical US driver. The typical driver also expects the high prices to continue or even worsen.
Two Gallup Inc. polls conducted during the past month quantify the thinking of US gasoline consumers. Many are reducing consumption of gasoline in various ways, spending less on other goods, and using mass transit. And most think high gasoline prices are here to stay and will continue to increase.
Gallup poll
In a USA Today/Gallup poll conducted May 2-4, 78% of the 1,017 adult respondents said they think that the rise in gasoline prices is a permanent change. In August 2003, only 33% of poll respondents felt this way.
When asked if rising prices are causing financial hardships for them or their families, 71% responded yes, nearly as high as the 72% affirmative rate in a similar September 2005 post-Hurricane Katrina poll. Of the 71% positive responders, about 35% (equivalent to 25% of the entire population) said that the hardship has been severe.
Due to these hardships, drivers are either changing their driving and spending habits, or increasing the efficiency of the cars they drive:
- 60% of those polled said they were “cutting back significantly on household spending,” a rise from 34% in a 2004 poll.
- 84% were consolidating trips or otherwise cutting back on daily driving.
- 74% said they tried harder to find less-expensive gas.
- 81% reported driving the most fuel-efficient car when given a choice.
- 76% had taken steps to increase mileage of the cars they own, including driving slower, tuning up their cars, or using air conditioning less.
- 71% were considering more fuel-efficient cars for their next vehicle purchase.
- 62% had shared rides with friends or neighbors.
- 51% decided to forgo a trip taken regularly in the past.
- 34% switched to a lower, and less-expensive, grade of gasoline.
- Only 31% were using mass transit or other alternative transportation modes.
Gallup reported that “the prevalence of finding creative ways…to compensate for the higher price of gas is inversely correlated with income.” High-income US drivers, however, are more likely than lower-income drivers to consider a more fuel-efficient vehicle in the future.
Gasoline, crude prices
Latest data (May 12) from the US Department of Energy’s Energy Information Administration show an average gasoline price of $3.72/gal paid by US consumers. Prices have risen more than 21% from a year-ago average of $3.10/gal (May 14, 2007) and more than 72% from an average of $2.16/gal in May 2005.
During the same time period, crude prices have risen even more dramatically. West Texas Intermediate closed at $124.24/bbl on May 12; $62.55/bbl on May 14, 2007; and $48.64/bbl on May 16, 2005.
A quick calculation shows that the ratio of gasoline-to-WTI prices has fallen to about 1.25:1 from year-ago levels of nearly 2.1:1. Applying the year-ago ratio to current WTI prices leads to an equivalent gasoline price of about $6.16/gal.
And the latest refining margins show this price divergence—US margins are down 30-50% from year-ago levels (OGJ, May 5, 2008, p. 93).
This all means that gasoline prices are more likely to get worse before they get better because refiners are less willing to operate less-profitable units, especially if crude prices stay on their current trend.
The May Gallup poll reported that 54% of those polled thought that gasoline would reach $6/gal in the next 5 years. And 19% of those polled thought gasoline would reach $10/gal sometime during the next 5 years.
Another Gallup poll, conducted Apr. 25-27, reported that 89% of respondents think gasoline prices in their local area will reach $4/gal this summer, 22% expect prices of $5/gal, and 5% expect that prices will reach $6/gal.
Time will tell if public perceptions in this case are prophetic.
