California Autos Examiner

Wednesday, December 19, 2007

Elastic Inelasticity and the Gasoline Rebellion

So, what's with the title of the article, right? Do you detect a Hardy Boys / Scooby Doo influence? I really don't know so I'm asking you. Anyways on with the tale of the Gasoline Rebellion.

Many economists will tell you that demand for gasoline is relatively inelastic: whatever the cost, we pay it and keep on moving. Some of my co-workers don't even look at the price, they just swipe the card, pump and go. "Do you want a receipt?" No thanks.

Well, growth in gasoline demand has been slowing all year. In five of the last seven peaks, the amount of gas that Americans consume has fallen compared to the same time last year, according to retail sales data gathered by MasterCard SpendingPulse. What gives? Recession? Trip consolidation? Shift to more efficient vehicles?

Maybe our country's oil waistband does have a bit of give in it after all?

As much as we might try to read the tea leaves at the bottom of the barrel, it's important to remember that there are no tea leaves in gasoline, so the best I can do for you is fish around for quotes:

"It is perhaps premature to conclude that U.S. gasoline demand is inevitably poised to contract significantly in the months ahead," the IEA, energy adviser to industrialized countries, said in its monthly report.

The old joke that asks, "What's round and goes 'Grrrrr?' " is beginning to make itself felt in the nation's economy. Of course, the answer is "a vicious circle," and the relationship of crude prices to inflation and back to crude prices is, indeed, sometimes a circular phenomenon.

The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel. Looking even further ahead, prices could easily fall to $30 a barrel or even lower. So before you trade in your Cadillac Escalade for a Toyota Prius, think twice: $1.50-a-gallon gas might not be gone forever.

My favorite words of wisdom, however, come from Sheik Yamani, the Saudi oil minister from 1962 until 1986:

"If we force Western governments to invest heavily in finding alternative sources of energy, they will."

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

In the short term oil prices will undoubtedly bounce around: based off of topical news such as political strife, storms and economic data. However, there is an armada of technology on the horizon to help us get away from the dino juice and at the same time better exploit the oil reserves that we have. It will take some considerable time to pass before the nation's fleet of vehicles is changed in any significant way. Plus, there is the fact that even though we may improve our average fuel economy, we'll also be adding more drivers.

I never paid much attention to MPG when car shopping, but I will definitely consider fuel mileage with my next purchase. Oh yeah, and my "just fill it up" co-worker was talking about diesels this morning. He's never mentioned them before.
A Gasoline Rebellion? You tell me Scooby Doo.

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