Americans are driving less but still paying more.
Whatever happened to the law of supply-and-demand? Despite a notable reduction in the amount Americans are driving, fuel prices have not responded in traditional fashion and are, if anything, continuing to rise after a brief respite.
The Benchmark West Texas Intermediate Crude jumped more than 2% on Tuesday, climbing $2.28 a barrel, to $97.43. In Europe, closely-watched Ice Brent Crude did slip slightly in early Wednesday trading, but had still climbed to $117.36 a barrel.
Many economists had expected the oil price numbers to keep falling, as they did leading up to the beginning of the month, reflecting worsening economic news around the world – which often translates into reduced demand. In earlier times, prices almost certainly would have slumped on word that U.S. motorists have continued curbing their driving – now for the fourth month in a row.
A study by MasterCard found that even over the Independence Day weekend, normally among the most heavily travelled holidays of the year, demand for gasoline fell 1.7%. For the previous four weeks, the MasterCard Spending Pulse survey showed consumption down 1.1%.
There had been some signs of a last-minute surge as fuel prices briefly declined in June, but American drivers appear to be adjusting their behind-the-wheel habits, whether car-pooling more, staying home, or better planning their errands.
The problem for U.S. motorists is that American demand, while still huge, is no longer the single-largest driver of oil trading, not as India and China, in particular, keep raising their consumption rates.
Indeed, OPEC this week warned that while demand is down a bit, it will still hit record levels in 2011, even though, “the unsteady global economy has added risks to the forecast.”
The group, which represents leading oil producers, such as Saudi Arabia, Venezuela and Nigeria, predicts demand will reach an all-time high of 88.18 million barrels this year.
Meanwhile, the U.S. Energy Information Administration anticipates the figure will climb 1.6% this year to 88.16 million barrels.
Complicating matters has been the continuing turbulence in the Middle East, with major producer Libya still tied up in what is essentially a civil war.
A report on the Associated Press said that in traditional times, considering weak economic conditions, oil would likely be trading at closer to $67. But few, if any, observers expect to see the sort of wholesale collapse in prices that occurred in 2008 – after petro prices hit their last peak then plunged when most of the world slipped into a deep recession. Of course, a U.S. debt default or smaller failures in Europe, which could threaten the entire Euro-zone, might change the math.