Video: High demand for gas despite record prices

By John W. Schoen Senior Producer
msnbc.com
updated 5/16/2007 12:46:00 PM ET 2007-05-16T16:46:00
COMMENTARY

Our column last week — on the folly of this week’s e-mail-hyped gasoline ‘boycott’ — drew a ton of mail. Many readers took issue with our view that not buying gas on Wednesday — and just topping off on Tuesday or Thursday — will have zero impact on prices.

Some were critical of our willingness to punch holes in proposed solutions without offering any of our own. (We suggest they read last week’s column all the way through.) Since many people missed the real solution, we’re going to give it one more shot.

The fact that the e-mail has generated such a "buzz" tells you how frustrated we are with Big Oil Companies, the Oil War in Iraq, the Bush Oil Administration in Washington, and the enemies in the Middle East to whom we give our hard-earned money.  Don't be a Dream Killer!
-- Mark C., address withheld

So your advice is to sit back and take it like a man? I don't need a math quiz to realize that the doubling of gas is reducing my spendable income significantly. Just work harder and longer to make up the difference?
-- Ron K. Seattle,

No, working harder won’t cut gasoline prices. The problem with the proposed gas ‘boycott’ is that since it won’t cut consumption, it will just shift sales from one day to the next.

That’s also what’s wrong with an alternative proposal offered by many readers: singling out one brand of gasoline to “concentrate” the impact. Unfortunately, when you concentrate zero impact, you still end up with zero impact.

Big Oil companies like ExxonMobil and Chevron make very little of their money from retail gasoline sales. Most gasoline is sold at convenience stores, and even those with Big Oil company logos are mostly independently owned by people who make just a few cents on every gallon. Many of these store owners have invested their life savings to set up shop. Those are the people you’ll hurt if you target a single brand; refiners will simply sell the gasoline to other outlets.

But you can do something about gasoline prices: You can use less gas. As we’ll see, a relatively small reduction in demand can have a big impact on prices. So if you’re serious about doing something to lower the price at the pump, try these Two Simple Steps that won’t cost you a dime:

Simple Step No. 1: Stop driving like a jerk
You know who you are: You punch the accelerator the minute the light changes and cruise at top speed until the last possible moment before hitting the brakes hard at the stop sign. Just because you can go from 0 to 60 mph in seven seconds doesn’t mean you have to (unless you’re trying to merge onto a busy highway). Aside from annoying other drivers on the road, you’re wasting a lot of gasoline.

How much is a lot? According to fueleconomy.gov, you can save from 5 percent to 33 percent —depending on just how manic you are behind the wheel. The folks at Edmunds.com, a car buying Web site, tested the idea, running a 50-mile course with four different driving styles from “aggressive” to “moderate.” Average fuel savings: 31 percent.

Simple Step No. 2: Slow down
Look, we’re not talking about crawling along in the right lane backing up traffic. We’re talking about staying within the posted speed limit — or even a little over it. There’s no magic number for optimal mileage; it varies from one car to the next. But if your car has a tachometer, try keeping it as low as possible in the highest gear. That’s where you get the best mileage.

According to fueleconomy.gov, your gas mileage drops off sharply once you blow past 60 mph. By cutting your speed you can save 7 percent to 23 percent, depending on how heavy-footed your usual driving style.

Worried that you won’t get everything done in your busy life if you ease off on the gas? Take a look at how much time it will cost you: On a 30-mile trip, slowing down from 70 to 55 mph will get you there about 7 minutes later. Spend that extra time daydreaming about how you’re going to spend all the money you're saving on gasoline.

Changing your air filter can also make a difference — if it’s clogged up. So can keeping your tires properly inflated and your car tuned up. Taking all that junk out of your trunk wouldn’t hurt either. But the two biggest gas-mileage improvements won’t cost a dime — or even change how many miles you drive.

Not everyone drives like a jerk and whizzes by at 90 mph in the left lane. It turns out that we wouldn’t have to cut consumption by 40 percent or 30 percent or even 20 percent to send pump prices lower. Try 7 percent.

That’s how much demand fell off last winter. After peaking at 9.7 million barrels in the week of Aug. 4, 2006, U.S. gasoline demand hit a low of 9.0 million barrels during the week of Jan. 19, 2007 — a difference of 7 percent. During the same period, the average U.S. price peaked at $3.083 in August and fell to $2.213 by the end of January — a drop of 28 percent.

Even a 1 percent drop would make a difference, according to Tom Kloza, president of Oil Price Information Service.

One big reason gasoline prices run up is that buyers and sellers bid up prices when supplies get close to demand. Right now, though there's enough gasoline still flowing through the system to meet demand, refineries are running at near capacity and stockpiles are far below normal for this time of year. The market is very “tight.”

When that happens, it doesn’t take much of a supply cushion to have a big impact on prices. Kloza likens this to the difference between a pot of water that’s about to boil and one that boils over — all it takes is that one degree of heat to make the difference.

“Right now, demand is running about 1 percent above last year,” he wrote recently in his blog. “Most professional traders would concur that if the market delivers 1 percent of ‘demand destruction’ in early summer, much of the froth in prices will decompose.”

A 1 percent drop in demand is tiny: Kloza figures if 100 million drivers used one less gallon a month, or 4.3 ounces a day, that would have an impact. Based on average 20 miles per gallon, he figures that would mean shortening your daily driving routine by 3,522 feet a day.

Or you could stop driving like a jerk and slow down. Either way, if you really want to do something about the price of gasoline, it’s in your hands.

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