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Mysteries of gasoline demand revealed

We’re awash in statistics and metrics these days, many of them contradictory.  Numbers can be easily slanted or misrepresented for political effect, leaving voters to reconcile the difference between the reality they perceive, and the conflicting impressions presented by government statistics and media spin.  This is one reason gasoline prices strike so many people as the most effective indicator of overall economic health, as the Obama Administration has discovered to its sorrow. 

A large and complex story lies behind the price you see at the pump, but the price itself is merciless and absolute.  It’s not anecdotal, something happening to other people beyond the horizon.  It’s right there in your face, every time you roll into the gas station, and beyond a certain point, those price increases cannot be spun away.

The story behind those gas prices is indeed large and complex, and within its pages lurk quite a few of those slanted, contradictory statistics.  Carolyn Cui at the Wall Street Journal published a very interesting article about one of them on Tuesday evening: the demand for gasoline, as reported by the Energy Information Administration of the Energy Department.

The EIA issues a weekly report on the demand for gasoline in the United States, which is of great interest to analysts, the oil industry, and traders.  Contrary to Democrat Party dogma, the laws of supply and demand do apply to gasoline.  (Recall that the official position of the Democrat Party is that American gasoline supplies have absolutely zero effect on price, unless that gasoline has been stored in the Strategic Petroleum Reserve first.  Only foreign gasoline supplies drive down prices when they are increased.)  The EIA’s report of rising and falling demand therefore influences production at refineries, expansion plans for production facilities, and the market activity of traders.

There’s a big problem with the EIA data: it has lately been showing a very dramatic reduction in domestic gasoline demand, far beyond what analysts believe would be realistic, given the increased prices.  People are driving less as prices soar, but the EIA’s numbers are roughly doubling the reduction in demand.  The numbers are especially puzzling when compared to the modest increase in job creation we’ve seen lately.  As one oil industry manager said to Cui, “How are they getting to work?  Are they walking?”

Not yet.  And that’s what we should all be afraid of.

The immediate problem with the EIA data is that it has always under-estimated the volume of gasoline exports, by a factor of over 50 percent.  When it recently corrected this mistake, an illusory drop in the apparent domestic demand for gasoline resulted.  The EIA thinks our demand is down 7 percent, when the real figure is more like 4 percent.

The larger problem, as outlined by Cui, is that the EIA is painfully under-funded:

Last year, Congress cut the EIA’s budget 14%, forcing it to scale back its research efforts, including the termination of its annual report on U.S. oil and gas reserves.

The gasoline-demand data are among several market-moving reports that have come under question in recent years, including crude-oil inventories and natural-gas outputs. The EIA also has drawn criticism for using outdated models that have sometimes resulted in skewed data. Critics say they often are slow to catch up with major shifts in the industry, such as big jumps in supply or changes in demand. The EIA says it is aware of the problems and fixes them when it can, though it is constrained by its budget.

This has led some analysts to caution that EIA data should be taken with a grain of salt, or disregarded entirely because of its unreliability.

But wait!  Didn’t Energy Secretary Steven Chu testify before Congress just yesterday about hundreds of billions of dollars poured into “green energy” rat holes run by well-connected Democrat donors, vanishing into a string of bankruptcies and fat executive bonuses?  Once again, we have an example of Big Government losing its competence at a core responsibility as it devotes more of its resources to political agendas and command economics.  If the provision of reliable data on energy consumption isn’t a core responsibility of the Energy Department, then what is?  And if they can’t fulfill that mission, why do we need an Energy Department?

Here’s the scary part: the true percentage of decrease in American gasoline demand is not nearly enough to satisfy people like Barack Obama and Steven Chu, who believe high prices are necessary to break us from our “oil addiction,” forcing us to embrace “alternative technologies” that otherwise would not make any economic sense.  A four percent reduction is not “transformative” enough, which means $4 per gallon isn’t high enough. 

As it happens, $4 per gallon is roughly the gasoline price point at which expensive hybrid cars break even with traditional economy cars, assuming average length of ownership.  I’ve seen it calculated as high as $4.50.  Substantial savings, of the sort car dealers will eagerly advertise, will require $4.50 to $5 per gallon, at which point the hybrids will become cost-competitive with the most popular mid-range sedans.  It will also take prices that high to make the smaller, lighter, less comfortable, more expensive, more dangerous cars built to comply with President Obama’s rising fuel efficiency standards seem attractive to the public. 

That’s where we are headed, if we allow people who think like Obama and Chu to remain in charge, politically reinforced by agencies spewing unreliable data.  Distorting, or controlling, the perception of demand is very helpful to those who believe poltiical imperatives can trump economic law. 

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Written By

John Hayward began his blogging career as a guest writer at Hot Air under the pen name "Doctor Zero," producing a collection of essays entitled Doctor Zero: Year One. He is a great admirer of free-market thinkers such as Arthur Laffer, Milton Friedman, and Thomas Sowell. He writes both political and cultural commentary, including book and movie reviews. An avid fan of horror and fantasy fiction, he has produced an e-book collection of short horror stories entitled Persistent Dread. John is a former staff writer for Human Events. He is a regular guest on the Rusty Humphries radio show, and has appeared on numerous other local and national radio programs, including G. Gordon Liddy, BattleLine, and Dennis Miller.

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