Kemp: Cheaper Gasoline Should Give Limited Boost to US Fuel Consumption

Kemp: Cheaper Gasoline Should Give Limited Boost to US Fuel Consumption
Gasoline consumption depends on the volume of traffic and the average fuel-economy of the cars on the road.

Reuters

LONDON, June 23 (Reuters) - Cheaper gasoline prices should spur an increase in driving in the United States and provide a limited boost for gasoline consumption over the summer, after a slow start to the year.

Gasoline consumption depends on the volume of traffic (vehicle-miles travelled) and the average fuel-economy of the cars on the road.

Traffic volume in turn depends on demographic and economic factors (population, household formation, car ownership, urbanisation, average incomes and employment) and to a more limited extent gasoline prices at the pump.

Gasoline prices influence fuel consumption primarily through consumer choices about fuel-economy when purchasing new vehicles and choices about the amount of discretionary driving.

Rising gasoline prices tend to be associated with slower growth in traffic volumes and slower growth in gasoline consumption (as measured by the volume of gasoline supplied to domestic U.S. customers).

Experience shows that prices have a relatively small impact on traffic and gasoline consumption (although the precise relationship remains fiercely controversial among researchers).

As a rough approximation, changes in traffic volume and fuel consumption are an order of magnitude smaller than price changes.

The slump in gasoline prices between the middle of 2014 and early 2016 coincided with a marked acceleration in the growth of both vehicle-miles travelled and fuel consumption (http://tmsnrt.rs/2sxRvli).

But gasoline prices troughed early last year and have been rising month-on-month since March 2016, and year-on-year since November 2016, according to the U.S. Energy Information Administration.

The rate of growth in both miles-driven and gasoline consumption slowed during the second half of 2016 and the first two months in 2017.

More recently, however, gasoline prices have stabilised and even fallen, which should remove one of the factors inhibiting gasoline consumption growth.

Pump prices have fallen nearly 5 percent since the end of April, according to data from the Energy Information Administration.

Gasoline consumption has been relatively strong since the start of March, running at or near record levels set in 2016.

Gasoline supplied hit record levels in two of the last four weeks, according to the snapshot provided in the EIA's "Weekly Petroleum Status Report" (WPSR).


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