YOU ARE HERE: LAT HomeCollections

U.S. Motorists Using Gasoline at Rising Rate

July 16, 1987|DONALD WOUTAT | Times Staff Writer

The nation's appetite for gasoline is growing about twice as fast as expected and overall demand for oil products is up significantly this year, contradicting forecasts that growth in demand would subside, an oil industry group said Wednesday.

Iranian threats to step up attacks on tankers in the Persian Gulf, coupled with the added demand, drove prices of crude oil for future delivery above $22 a barrel on the New York Mercantile Exchange, the highest level in more than a year.

U.S. oil consumption figures for the first half of 1987 showed gasoline usage--powered by low prices, a surge in driving, continued economic growth and other factors--rising 2.4%, compared to the same period last year, to an average of nearly 7.1 million barrels a day.

Sharp Rise Over Year Ago

The figures from the American Petroleum Institute showed a sharper 3.9% rise, to 7.4 million barrels, for the April-June quarter over the same period a year earlier. The data measures the movement of gasoline from storage to retail distributors.

The increases in demand come on the heels of a steep 3% increase in gasoline demand last year, compared to 1985. The surge was attributed to increased driving prompted by the 1986 collapse of crude oil prices, which was followed by a steep drop in prices at the pump.

But the latest numbers come as a surprise because many economists, including those at the Department of Energy, expected gasoline demand to subside or grow only slightly this year. The DOE projected a rise of less than 1% in gasoline usage in the first half of 1987 and flat usage for the year as a whole.

Some analysts cautioned that the first-half figures might overstate the underlying demand because, in the comparison period a year ago, retail prices were still catching up with falling prices for crude. Thus, motorists were not yet seeing the full benefit of lower prices.

"Our view is there is a steady increase in demand but that it is not going to turn out to be as great as it appears at the moment," said Thomas Burns, manager of the economics staff at Chevron Corp. in San Francisco.

But some argue that the government and others continue to underestimate the behavioral changes that swings in oil prices seem to induce in motorists. They are supported by Federal Highway Administration statistics showing a sharp increase in vehicle miles driven, which some contend cannot be explained fully by economic growth.

"The DOE has historically underestimated the consumer's reaction to gasoline prices," said Scott Jones, vice president and economist at Wharton Econometrics in Bala Cynwyd, Pa. "We're just marching down the same old highway, and I don't see any way to abate it."

He was referring to the predictions of many economists that today's relatively low oil prices will result in higher demand as the energy conservation mentality declines, U.S. oil production will fall because it is less profitable to oil companies, and reliance on imported oil will inevitably rise.

Despite a decline in the use of residual oil used to make electricity so far this year as natural gas and coal prices followed oil down in price, oil's share of total energy consumed has climbed a full percentage point to about 43% this year, the American Petroleum Institute said.

Citing Federal Highway Administration figures, Edward Murphy, head of research for the petroleum institute, said there has been a 5% increase so far this year in vehicle miles driven. Only about half of that was offset by improved fuel efficiency in autos now on the road. Jet fuel use is also up.

"The significance of the six-month figures is that the growth is similar to last year. People had not expected that to happen," Murphy said.

Confidence in Supply

The increased driving is attributed in part to gasoline prices, which have risen in recent months to the $1-per-gallon range but remain low compared to the $1.20 average that prevailed before prices began to collapse in December, 1985.

Continued economic growth and consumer confidence in continued cheap, plentiful supplies of gasoline have contributed heavily, economist Jones said.

In California, the nation's biggest automobile market, drivers have set monthly records for gasoline consumption for 14 straight months, according to the State Board of Equalization. Motorists consumed nearly 12.3 billion gallons of gasoline last year, shattering the record set in the pre-Iranian revolution days of 1978. So far this year, sales are running 5.2% ahead of last year's record pace.

The rise in consumption has coincided with increasing prices for crude oil over the last several months, but Tuesday's 57-cent surge in futures contracts for crude to $22.15 was attributed to more than the Petroleum Institute report on demand figures. In fact, some analysts discounted the demand figures as holding more long-term than short-term significance.

Traders were also responding to reports of an Iraq attack on Iranian oil facilities, an apparent acceleration of tensions in the Persian Gulf that have been sending prices higher for several days. As recently as late June, such contracts for future delivery of crude oil were trading below $20 a barrel.

Underlying prices also remain strong in the wake of the recent agreement by the Organization of Petroleum Exporting Countries to further restrict production. Most major oil companies Wednesday raised their official prices another 50 cents a barrel, to $20, for West Texas intermediate crude. It is the second round of increases in a week in the prices that oil companies will pay for long-term supplies of crude oil.

Los Angeles Times Articles