Opec producers fret about the destruction of demand for crude oil setting in if prices rise too high. Judging from the EIA’s latest short-term forecasts, their concerns about further declines in developed world demand might be borne out by this year’s US driving season.
The EIA says any boost from economic recovery for gasoline demand will be wiped out by higher prices, which the agency expects will be about 50c/gallon higher this summer than last year’s driving season – $2.92 compared to $2.44, to be exact, and prices will likely exceed $3 at times. The EIA, which has raised its 2010 WTI forecast slightly to $80.74, also says every dollar of sustained price increase above its forecasts will result in about a 2.4c per gallon increase for gasoline and diesel.
Although liquids consumption overall fell 4.2 per cent in 2009, gasoline consumption itself was unchanged – which the EIA puts down partly to lower prices.
But for 2010, the EIA writes (our emphasis):
Motor Gasoline. During this summer season, projected motor gasoline consumption increases by 0.5 percent over last summer, substantially lower than the 0.8-percent growth rate recorded last summer. Gasoline consumption last summer was stimulated by both the beginning of economic recovery and a $1.37-per-gallon decline in gasoline prices from the previous year. In addition, there was a reversal in the trend of public transportation usage, which fell by 3.8 percent in 2009 after having risen by 4 percent in 2008 (American Public Transportation Association). This summer, the stimulus to demand from the continuing modest economic recovery is constrained by the projected $0.48-per-gallon average increase in gasoline prices over last summer.
Indeed, a recent note by economist and analyst Philip K. Verleger shows how spending on gasoline fell away last year:
So even if consumption remained steady, the amount spent on gasoline fell significantly.