With World Oil Consumption at Record Levels, Is a Return to $2 Gas Out of the Question?
Gas has been getting cheaper lately. The national average price has dropped nearly 10 percent from its 2011 high of $3.91 per gallon in May, and with the summer driving season wrapping up, some analysts see prices falling even further in the coming weeks and months. But is the recent decline at the pumps a normal downward correction or a sign that speculators drastically overreacted this spring, as turmoil in the Middle East threatened world crude supplies?
It’s a question that is probably on the minds of many in the auto industry as companies like General Motors, Ford, and Hyundai radically retool their lineups to maximize fuel economy. The upward momentum of gas prices has led to a surge in purchases of compact vehicles like the Chevy Cruze, Ford Focus and Hyundai Elantra, and though supply shortages have hampered sales of some hybrid models, the gas-electric market seems poised to continue to grow as long as gas prices remain near current levels.
While would like to see gasoline fall back to below $2 per gallon, one Republican presidential hopeful yesterday went so far as to make it a campaign promise. At a campaign stop in South Carolina, Minnesota congresswoman Michelle Bachmann vowed Tuesday to lower gas prices back to 2009 levels by expanding domestic drilling. “Under President Bachmann you will see gasoline come down below $2 per gallon again,” pledged Bachmann. “That will happen.”
But trends in international energy consumption and the limited potential of undeveloped resources (like those in the Arctic National Wildlife Refuge) to dramatically increase output, make a return to $2 gas nearly unthinkable barring a severe global economic decline. According to a recently released report by the Worldwatch Institute, international oil consumption grew 3.1% percent in 2010 to 87.4 million barrels per day, boosted mostly by increased demand from growing economies like China—which now uses about 10 percent of the world’s oil output. “The momentum of future market growth has moved to the developing world, where oil consumption did not miss a beat during the recession and shows no sign of slowing,” said Natalie Narotzky, co-author of the report.
Regardless of where oil prices are headed, carmakers will have to continue to build more and more efficient cars to keep pace with emissions standards in the United States and Europe. But whether consumers buy cars at the higher end of the fuel economy spectrum—particularly hybrid and electric vehicles—depends largely on oil prices. Thankfully for automakers who have hitched their fortunes to fuel-efficient cars, a Michelle Bachmann presidency would be unlikely to be able to deliver upon the drastic drop in gas prices that candidate Bachmann promises.