This story is a few weeks old, but I came across a Wall Street Journal article dated July10th with the headline “Gas Prices Spur Drivers to Cut Use to Five-Year Low.” I had mixed emotions when I read that. On one hand, lower gas use will ease the upward pressure on prices. On the other hand, as we have seen time after time, when prices go back down consumers ramp up use again, so the problem never gets fixed. Hence, many claim the solution for high gas prices is… even higher gas prices.
After reading that headline I wrongly assumed that U.S. gasoline use had actually fallen to levels not seen since 2003. After all, the article pointed out “gasoline consumption dropped 3.3% from last year to 9.347 million barrels a day.”
The very next sentence, however, gave us the real picture. It reads “For the first week of July, that is the least drivers have used since 2003, when consumption was 9.05 million barrels a day.”
Wait… what? Gasoline demand reached a five year low, but isn’t 9.347 barrels per day a lot more than 9.05 million? In reality, gas demand has risen 3.3% since 2003. What the author was trying to say was that the year-over-year change in demand was the lowest in five years.
I only point this out because many people have quoted this data and would have you believe that Americans are really cutting back on gasoline use. In reality though, even though prices at the pump have more than doubled over the last five years, we are still using 3% more gas today than we did then. Demand destruction is happening this year, just not in any meaningful way if you look at the bigger picture.