Wednesday, October 8, 2008

Gas prices

Gas prices here are down to $3.37 and dropping. Not suprising considering the news on oil and gasoline supplies. Crude oil supplies are up 8.1 million barrels this week, making 2 consecutive weeks of increased supply. And the increase is 4 times the 2.2 million barrel increase predicted. Gasoline inventories are similarly up 7.2 million barrels, nearly 5 times the 1.5 million barrel prediction.

The oil industry's getting bit hard. They figured they could keep increasing prices indefinitely with no consequences. Wrong. When gas crossed the $4/gallon figure, people changed their behavior. If they were looking for a car, they stopped looking at big SUVs and pick-ups and started looking at more fuel-efficient, smaller models. If they had a gas-guzzler, if they could afford it they dumped it in favor of something that wouldn't eat their pocketbooks. Across the board they stopped driving as much, trying to cut down on how much gas they had to buy every week. And it went on long enough that these changes are permanent. Demand for gasoline won't be increasing as prices decline, not until the population grows enough to offset the decline in per-capita use. I'd note we've seen this before, back during the gas crisis of the 1970s. Prices climbed so far so fast that people dumped their big American gas-guzzlers for Japanese compacts, and demand dropped and stayed down for years until population growth caught things up. So anybody who's making projections based on last year's demand? Your input's garbage, expect your output to be garbage too.

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