Fewer Cars, Less Driving, Lower Fuel Consumption Add Up Falling U.S. Demand for Oil

The latest report on fuel consumption from Michael Sivak of The University of Michigan Transportation Research Institute looked at data from the period 1984 to 2011, and found that there has been a 16% drop in average annual per person fuel consumption since the peak in 2004 is greater than the 9% drop in miles driven. The larger drop in consumption, he concludes, reflects “the added contribution of improved vehicle fuel economy.”

And fuel economy improvements are only going to get better as carmakers aim toward the 2025 mandated goal for fuel economy of 54.5 miles per gallon.

One interesting point that Sivak makes in his report is that the decline in fuel consumption began before the economic downturn following the financial crisis of 2008-2009. Consumption did rise slightly when gasoline prices fell sharply in 2010, but consumption fell again in 2011 when gasoline prices went back up. The price of gasoline does have some effect on fuel consumption, of course, but vehicle fuel economy appears to be playing a far larger role.

The number of light-duty vehicles in the U.S. (cars, pickups, SUVs, and vans) peaked in 2008 before beginning to rise again in 2011. But as new, more fuel-efficient vehicles replace older models, fuel consumption falls. New car sales have been very strong over the past two years, boosting fuel economy numbers even higher.

There are at least a few ramifications to all this that we might consider. First, U.S. oil producers are very likely soon to begin lobbying for an end to the prohibition on exporting crude oil that was enacted in 1975 in response to the first OPEC oil embargo. Second, U.S. refiners will increase their exports of gasoline and diesel fuel, primarily to Western Europe where the refining industry is in a shambles. Third, gasoline prices in the U.S. should continue to decline and may fall as low as $2.50 a gallon and remain right around that price point for some time.