U.S. Gasoline Demand Drops To Decade Low For July

By Danny King August 24, 2011

U.S. demand for gasoline last month was at its lowest for July in a decade as the slower-than-expected economic recovery appeared to cause many people to either cut back on driving or buy more fuel-efficient cars. U.S. refinery gasoline production in July dropped 2.3 percent from a year earlier, marking the first year-over-year drop for 2011, the American Petroleum Institute (API) said in a report released late last week. Gasoline demand relative to previous summers appeared to be hindered by a stubbornly high unemployment rate.

July Record Low Gas Demand - iStock.jpgThe U.S. unemployment rate for July was 9.1 percent, which was down from 9.5 percent a year earlier but little changed from May and June, the U.S. Bureau of Labor Statistics said earlier this month. U.S. gross domestic product growth slowed to 0.4 percent during the first quarter and 1.3 percent during the second quarter from more than 2 percent during the last half of 2010, according to the U.S. Commerce Department. Unemployment claims are also up in August. "Consumers aren't spending, and jobless claims have increased, so it isn't surprising gasoline demand was down and overall demand slipped a bit," API Chief Economist John Felmy said in a statement.

Changing Habits
Additionally, Americans may have slightly adjusted their car-buying habits towards more fuel-efficient vehicles as gas prices spiked during the first half of the year. "We have been in an economic soft patch this summer," said Edmunds.com Chief Economist Lacey Plache. "There is quite likely decreased demand for driving vacations and other non-essential driving due to higher gas prices since late February and due to still weak economic conditions." U.S. average regular gas prices approached $4 a gallon in early May and are at about $3.65 a gallon now, up more than 30 percent from a year ago, according to AAA. As a result, Americans appear to have increased purchases of four-cylinder cars, even as deliveries for many small-engined models from Japanese automakers such as Toyota and Honda were hindered by the tsunami and earthquake that struck Japan in March. General Motors' Chevrolet Cruze compact sedan accounted for 10 percent of the automaker's unit sales through July, while Ford Focus unit sales increased 7.3 percent and the relaunched Fiesta sales were way up.

In all, subcompact cars accounted for 4.7 percent of U.S. vehicle purchases during the first seven months of the year, up from 3.6 percent a year earlier, while the propensity to buy entry level SUVs and luxury cars as well as large trucks are down this year, according to statistics compiled by Edmunds.com. So while consumers may be responding to economic signals that are mixed at best, car-buying habits may be tilting as well, according to Edmunds.com Industry Analyst Ivan Drury. "We could be seeing the impact of more consumers purchasing fuel efficient cars over the last few years," said Drury.

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