Gasoline Consumption Drops to July 1999 Level

 

By Wolf Richter for WOLF STREET.

Some demand destruction is behavioral and may bounce back; some is structural, growing, and long term: The decline of an industry.

The spike in gasoline prices motivated Americans to go on buyers’ strike. The phenomenon of a price shock reducing demand for that product is called “demand destruction” in economics. It can reverse when the price falls to such a low level that demand returns. Demand destruction has now turned into a crescendo during peak driving season, including the 4th of July holiday weekend.

In the week through July 8, gasoline consumption plunged by 9.7% to 8.73 million barrels per day, on a four-week moving average, according to EIA data. The EIA measures gasoline consumption in terms of barrels supplied to the market by refiners, blenders, etc., and not by retail sales at gas stations. This was the steepest decline yet so far this year.

Consumption, compared to three years earlier, started dropping in January. At the time, the price was in the $3.30 range:

Demand destruction weighs on price.

The average price of gasoline, all grades combined, after spiking by 63% year-over-year to $5.00 a gallon on June 13, has now dipped for the fourth week in a row, to $4.65 as of Monday, according to EIA data. Between 2015 and 2021, the price ranged between $2 and $3 mostly. It was a shock to suddenly see $5. In lots of places, folks saw over $6 for regular.

Summer driving season in the US means gasoline consumption surges, hitting high points around the 4th of July week and then again around Labor Day. In the 2022 driving season too, gasoline consumption had been rising through mid-June (four-week moving average), but less than three years earlier, and in mid-June it plateaued instead of surging, and now consumption has plunged to the lowest level since mid-April.

The red line in the chart below spans July 2021 through early July 2022. The gray line spans the same weeks in 2018 and 2019.

In the week ended July 8, consumption of 8.73 million barrels per day (four-week moving average) was down by 9.7% from the same period in 2019. But in 2021, June through December 2021, consumption tracked fairly closely the consumption in the same period three years earlier, in 2018:

This demand destruction of gasoline is happening on a global scale – and it doesn’t even figure in yet a recession, but just price resistance, as buyers go on strike wherever they can.

But in the US, people drive a lot more – whether to commute every day or to go shopping or to go on vacation – and they drive bigger vehicles than in most other countries, and they consume a lot of gasoline, and a spike like this in the price is particularly, let’s say, revolting – and finally motivating.

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