A Collective Sigh of Relief - Deloitte

Energy prices and consumer behavior
Wars are fought over it. Business cycles rise and fall around it. Political
elections are won or lost because of it. There are few prices in the
world that have a bigger impact on individuals, businesses, and even
governments than the price of oil. After falling steadily since the spring
of 2011, the price of oil reversed course in late December and has risen
sharply. The increase has been all the more surprising given the unseasonably
mild winter much of the United States is experiencing. Warm
winter weather traditionally puts downward pressure on energy prices
because demand for heating falls as the temperatures rise.
The spot price of West Texas Crude rose from $93 a barrel to $110
between mid-December and early March. Prices for Brent Crude in
Europe went from $102 a barrel to $126 over the same period of time.
Rising oil prices have taken the price of gasoline at the pump higher by
more than 50 cents a gallon in the United States.
Oil consumption began declining in April 2011 when oil prices peaked
and has accelerated over the past year even as prices declined in the
latter half of 2011. As of March 2012, oil consumption was down 4.5
percent from a year ago (see figure 6). Drops of this magnitude usually
have been associated with recessions. The decline in oil consumption
could be due to a number of factors. Energy productivity traditionally
rises in the face of rising prices and continues to rise for several years
following a price spike. Warmer winter temperatures are also holding
down consumption of heating oil, contributing to some of the decline.
The biggest decline, however, has come in gasoline.
Gasoline is both economically and politically important. It is a
commodity that most households purchase on a regular basis. It
directly affects consumer confidence and approval of current political
leadership even though that political leadership generally has very little
to do with the actual price. It can also have a signficant impact on
consumer behavior.
Every penny increase in the price of gasoline costs U.S. consumers an
extra $3.8 million a day. An increase of 50 cents a gallon translates to
$190 million a day, $5.7 billion a month, and $68.4 billion a year. In
January, household income, after adjustment for taxes and inflation,
was up just $60 billion from a year ago. Higher prices for gasoline are
showing up in two places: lower gasoline consumption and fewer
miles driven.
Gasoline consumption is down 6.7 percent from a year ago on a threemonth
moving average basis, an even greater drop than the demand
for oil (see figure 7). The drop is even more surprising given the severity
of last winter when compared to this year’s mild weather. Milder
weather should have prompted more driving.
The drop in gasoline consumption represents a combination of
improved energy efficiency coupled with a significant decline in driving.
Total miles driven on a 12-month moving average basis fell 1.2 percent
in 2011 from a year ago (see figure 8).
Over the past 40 years, there have only been three periods of time
when the number of miles driven declined. All three were associated
USA
Geographies
with deep recessions and sharply higher gasoline prices. While high
gasoline prices limit driving, there are several others at work as well.
Internet shopping continues to climb, taking share away from store
purchases and reducing the number of shopping trips. Telecommuting
has become a much more common practice and probably accounts for
some of the decline as well.
Rising energy prices have been a major factor in six of the past seven
recessions since the first major oil price spike back in 1973–1974.
Improved energy productivity, higher gas mileage, and greater use of
the Internet for both shopping and work has reduced but not eliminated
the exposure of the U.S. economy to current and future rises in
the price of oil. As was the case in the spring of 2011, the United States
and the global economy are once more at risk from rising energy prices.
Figure 6. U.S. petroleum products supplied
Three-month moving average, year-on-year change through March 2012
15
12
9
6
3
0
-3
-6
-9
-12
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: U.S. Energy Information Administration
Figure 7. Gasoline supplies delivered
13-week moving average, year-on-year change through March 2012
8
6
4
2
0
-2
-4
-6
-8
1993 1996 1999 2002 2005 2008 2011
Source: U.S. Energy Information Administration
Figure 8. Total miles driven
12-month moving average, year-on-year change through December 2011
8
6
4
2
0
-2
-4
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
Source: U.S. Department of Transportation
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