I pulled into the filling station somewhat reluctantly. It was packed with a parade of cars, SUVs and pickup trucks, each jockeying for their use nourish their internal combustion engines having a tank of gasoline. I do not like waiting. However i did, and after the ordeal I went into the station to buy a cup of coffee.
“What’s happening available,” I asked the teller, “what’s with the cars?”
“Don’t know sir,” said the teller, prompting me for my debit card. “Lots of individuals; I suppose they like to drive.”
Good vague answer, I figured. Must be an economist. I thanked him and turned my mind to how much the price of gasoline has fallen in United states markets. In certain American states the price per gallon dipped momentarily within dollar, the very first time since 1999.
Sitting back in my car I checked out my large coffee. On a volume basis, the java cost three-to-four-times around the items that arrives from the pumps. But that is OK, I thought, merging back to the highway C at least I get good mental mileage out of coffee.
But here’s the one thing: My gas station visit validated things i already was sensing. Back in the office I confirmed what was happening with charts and stats (see Figure 1). Collectively, we are all driving more in North America; specially in the showcase U.S. market.
The total amount of driving is measured by a stat called “vehicle miles travelled” or VMT. Take all the vehicles in the U.S. and add up the collective distance they drive in a year and you get VMT. In 2007 it hit an incomprehensible 3.04 trillion miles. That’s like going back and forth to rescue Matt Damon from Mars over 6,000 times.
Annual VMT began stalling around 2006, understandably coinciding with a steady doubling of gas prices. Then in ’09, the economic crisis place a crimp on all wallets; further encouraging car-pooling, commuting less or staying home altogether for being out of work.
Consumers place the brakes on driving and even highway vacations became “staycations.” The very first time because the oil price shocks of the 1970s, consumers’ behaviour toward driving changed.
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Now, a reversal of prices in the pumps is getting individuals to jump driving again. VMT in 2015 hit a new record: 3.15 trillion miles. And the trend line suggests a record rate of growth that is steeply continuing into 2016. I, for one, will be loath to set up in a touristy service station again C cheap gas along with a better tone to the economy is nearly sure to kick cars, SUVs and RVs into high gear by June. And U.S. gasoline consumption? The final data point confirms a record degree of consumption with this time of year.
Yet there’s more for this story. Cheap gas can also be luring consumers into auto show rooms to buy bigger and heavier models C a renewed trend toward vehicle obesity.
Pickup trucks and SUVs have inferior fuel economy because of their extra weight, slurping more gas per mile than lighter-weight passenger cars. Since U.S. retail gasoline prices have halved over the past Twenty months, the fraction of big vehicle sales has jumped from 52% to just about 60%.
Not surprisingly, data implies that U.S. sales-weighted gas mileage has flattened out within the same time period (after improving steadily from 20 mpg in 2007, to in excess of 25.5 mpg by mid-2014; today it remains at 25.2 mpg).
Neither of those related phenomena is new. People consume more when price falls. And when vehicles be fuel efficient, consumers trade their new-found cost savings in for upsized vehicles and much more driving.
I take a look at my screen and find out that oil has risen to US$40 a barrel. It’s too cheap to purchase future supply. But it is low enough to produce cheap gasoline that everybody loves to consume. Who says economic theory isn’t working?
Some are. “Oil prices are going to stay low, because demand goes down,” is really a thesis I often read and listen to.
Who created that?
The data shows what any economist would say, and just what any service station attendant would see: consumption is going up, because oil/gasoline costs are low. And despite lots of discuss changing attitudes toward climate change and other deleterious effects on our planet, vehicle sales data reveals that sense at all of conservation gets lost when prices go down and efficiency goes up.
So it’s to improper habits. The only real commodity I can think of that’s harder to give up is coffee.
Peter Tertzakian is chief energy economist and managing director at Calgary-based ARC Financial Corp.
