What will it take for the Chicago Cubs to win the World Series? What will it take for Sanjaya to be voted off American Idol? Unfortunately (or not) we don’t have a clue about the answers to either of these two questions. However, with the U.S. average retail price for regular gasoline now above $2.80 per gallon, some analysts and reporters have a new question on their minds -- : what level of prices would cause Americans to change their driving habits? Recent data suggest that average prices in the neighborhood of $3 per gallon might lead to such adjustments.
As the graph below indicates, the last two times the U.S. average retail price for regular gasoline approached and surpassed $3 per gallon (following Hurricane Katrina in 2005 and most of the summer in 2006), gasoline demand growth (the blue line in the chart below) did slow. Of course, there have been other times that gasoline demand growth has slowed. The latest weekly data showed demand continuing to grow at a strong clip, with the four weeks ending April 6 averaging 9.363 million barrels per day, or 2.5 percent higher than the same period last year. Demand for the week ending April 6, averaged 9.472 million barrels per day, a record for the month of April, far surpassing the previous weekly record for April (9.338 million barrels per day for the week ending April 9, 2004), while data for the week ending March 30 was also a record for March.
With the sharp increase in ethanol blending over the past year, gasoline demand measured in terms of energy content has not grown as fast as the volumetric measure of demand growth cited above, since ethanol has a lower energy content per unit volume than the fuel components it has displaced. But, even taking account of the change in fuel composition, recent data suggest that gasoline demand, however measured, is quite inelastic, meaning that it takes a large increase in prices to significantly affect demand.
Source : http://www.cattlenetwork.com/content.asp?contentid=120907
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