In early 2011, unrest in the Middle East and North Africa, particularly a near-total disruption in Libyan crude exports, caused crude oil prices to extend their gains of 2010. In addition , widespread refinery outages in the United States, both planned and unplanned, caused U.S. gasoline prices to rise even faster than crude prices, amplifying the typical seasonal increase in refiner gasoline margins across the country (margins reflect the difference between the gasoline wholesale price and the average cost of crude oil). By early May, those supply-side pressures had lifted average U.S. retail gasoline prices to $3.97 per gallon in EIA's weekly survey.
The sharp rise in gasoline prices since the end of 2010 appears to have taken a toll on U.S. gasoline consumption. From January through June, consumption averaged about 180 thousand bbl/d (2.0 percent) lower than the same period in 2010. Since then, gasoline prices retreated somewhat, falling 34 cents from their May 9 high of $3.97 per gallon to $3.63 per gallon as of August 29. Available weekly data for July and August indicate that gasoline consumption was about 150 thousand bbl/d (1.6 percent) lower than in the same period in 2010, suggesting continued weakness in domestic motor gasoline markets.
Looking into the role of the three key determinants of consumption
Gasoline consumption has fallen despite modest economic growth, driven by population, output, income, and employment expansion -- a combination that, under stable price conditions, would normally lead to increasing gasoline consumption. Real (inflation-adjusted) GDP for the first six months of 2011 is estimated to be 1.9 percent higher than for the same period in 2010. According to the EIA's Short-Term Energy Outlook (STEO) model, the short-term income elasticity for vehicle miles traveled is about 0.5 (meaning a 1-percent increase in income results in a 0.5-percent increase in miles traveled and gasoline consumption). This elasticity estimate implies motor gasoline consumption this year should have been 0.9 percent higher than the same period in 2010, assuming no year-over-year change in gasoline prices or the fuel efficiency of the vehicle fleet.
In its STEO model, EIA estimates the short-term elasticity of vehicle miles traveled with respect to the price of gasoline is about -0.07 (a 1-percent increase in prices leads to a 0.07 percent decline in highway travel). The average pump price of regular-grade gasoline during the first six months of 2011 was 28 percent higher than the same period last year. Motor gasoline consumption would therefore have been 2.0 percent lower than in 2010, assuming no year-over-year change in economic activity or improvement in the average efficiency of the vehicle fleet.