It felt great to fill up our Subaru the other day for just $25.00, and it got me reminiscing about the days when I fueled my Ford Pinto (Yes, it's true, my parents let me buy a Pinto when I was 17!) at the local Dean station for $5.00. I know $25.00 is a far cry from $5.00, but it's a lot better than the nearly $50.00 I had to spend to tank up in July. My most recent trip to the gas station has me wondering how long this gasoline holiday is going to last.
I wrote about cheaper gasoline in mid-November (Why Did My Gasoline Get So Cheap?), and the fundamentals that explained the price decline haven't changed—a weaker world economy, less driving, lower gasoline consumption and, therefore, a less precarious supply/demand balance. All those market factors are just becoming more pronounced as we enter the final stretch of 2008.
The Department of Labor reported a few days ago an unemployment rate in November of 6.7 percent, the highest level in 34 years. A loss of 533,000 jobs last month means a big drop in commuting and gasoline consumption.
I did a rough calculation, assuming that about half those people who lost their jobs drove an average of 20 miles to and from work each day of a five-day work week. That would account for a loss of about 5 million gallons of gasoline consumption per month, or about a 1.3 percent decline in U.S. gasoline demand. And that's just the loss due to unemployment. There's a much larger decline in the U.S. gasoline appetite due to recession-bred frugality.
The Energy Information Administration, which publishes official U.S. government energy statistics, just released its latest projection of a 3.4 percent drop in gasoline consumption this year versus 2007. The more recent drop in gasoline use is even a little higher, about 4 percent in the past month.
The erosion in gasoline demand since the beginning of November means that the big fall in prices from July to December has done little to persuade most drivers (even those who haven't lost their jobs) to hit the highway. The question remains, will gasoline stay cheap?
OPEC (the Organization of Petroleum Exporting Countries) is set to meet next week (December 19). This consortium of major oil producers decided at its last meeting to cut oil production by 1.5 million barrels per day on November 1. That's less than 2 percent of total world supply and obviously had no impact on US gasoline prices.
If they decide next week to cut oil production again, and they stick to that commitment, that could help stop gasoline prices from falling much further. Less oil production could support crude oil prices, which in turn could prevent of further decline in gasoline prices.
But, it won't necessarily result in higher prices. Gasoline demand has to increase first. And that probably isn't going to happen until employment figures improve and people like you and me gain more confidence in the economy. I don't know that I'll ever fill my tank for $5.00 again, but a fill-up for $20.00 looks like one bright possibility in this otherwise financially grim holiday season.