The White House has promised 180mn barrels from emergency oil stockpiles to address a global energy supply crisis. As for reducing consumption, American drivers have not got the memo.
US oil use this year has averaged almost 21mn barrels a day over the past month, according to preliminary government statistics, up 8 per cent from a year ago and back to pre-pandemic levels. Sales of petrol, diesel and especially jet fuel are all up — and likely to go higher as the summer holidays approach.
The strong demand in the world’s largest oil consumer is an unheralded factor in the increasingly tight world petroleum market, helping to drive the price of crude above $100 a barrel.
Even with record petrol prices around the US, fuel consumers are not yet backing down.
“Yeah, it definitely is costing a heck of a lot more to drive, but you deal with it,” said Larry Williams, a motorist, as he filled the tank of his Infiniti sport-utility vehicle at a petrol station in Katy, Texas this week. He paid $3.89 a gallon, bringing the total cost to $87.02, but said he had not cut back on driving.
The International Energy Agency, a watchdog for rich countries, has urged conservation in the face of what it calls an emerging global energy crisis triggered by Russia’s invasion of Ukraine. Its 10-point plan would include lower speed limits, working from home and more carpooling, adding up to a potential 2.7mn b/d cut in world oil demand.
By contrast, legislatures in US states from Florida to Maryland have temporarily suspended petrol taxes, subsidising driving. In California, Governor Gavin Newsom has proposed an $11bn relief package that would include a $400 tax rebate per car owner along with more incentives for electric vehicles.
US motorists are buying larger vehicles that burn more fuel. Trucks and SUVs accounted for 73 per cent of US light vehicle sales in 2021, up from 41 per cent in 2009, according to Edmunds, the automotive research group.
Chris Poulos, who oversees three car dealerships in the Houston area, said he was not seeing customers shift to electric vehicles, hybrids or smaller cars.
“Truth be told, there is absolutely no concern with gas prices . . . it’s been business as usual,” he said. “I have so much demand for my larger SUVs and full-size SUVs right now that I’ve got zero left.”
A recent Gallup poll found 85 per cent of people want the US president and Congress to try to bring down pump prices. Senior executives from some of the largest oil producers including ExxonMobil, Chevron, BP and Shell are scheduled to face questioning in Congress next week in a hearing called “Gouged at the Gas Station: Big Oil and America’s Pain at the Pump.”
The White House, which this week ordered the release of 180mn barrels from the US Strategic Petroleum Reserve, has said the global oil and natural gas crunch illustrates the need to speed up the shift to cleaner energy. The Biden administration on Friday finalised fuel economy standards that would require new vehicles in 2026 to get a third more miles per gallon than 2021 model vehicles.
The efficiency standards will have no immediate effect on demand, however.
Michael Tran, an oil analyst at RBC Capital Markets, said strong oil consumption is likely to persist, especially as Americans catch up on activities and trips they eschewed during the pandemic.
“If you have to pay an extra 50 or 60 cents a gallon to go visit your parents, grandparents or friends that you haven’t seen in two years, you’re going to do it anyway,” he said.
Tran said Americans’ household budgets are also better able to cope with fuel prices because they built up savings during the pandemic, compared to previous situations when they were more stretched. Spending on gasoline and other motor fuel in February was 2.82 per cent of overall US goods spending, according to the Bureau of Economic Analysis.
“We recognise that consumers are feeling the pinch at the pump, but the narrative and the psychological impact is worse than reality,” Tran said.
There is evidence that certain corners of the US oil market are weakening in the face of higher prices. Weekly petrol consumption figures have dipped in the past two weeks, according to the Energy Information Administration. Some metropolitan public transport agencies have reported bumps in ridership.
Williams, the Texas motorist, said he understood why the war in Ukraine and corresponding reduction in Russian oil supplies had helped drive up fuel prices. But, he suggested, US dependence on oil was hard to shake.
“It definitely does make you think a lot more about clean energy and electric vehicles and all that, but nothing is going to change overnight,” he said.
Source: Financial Times