As oil prices rise, shrugs at the gas pump

Despite a doubling of oil prices over two years, consumers still fill up their SUVs.

There is no new war sending crude prices soaring, no major governmental instability threatening to disrupt world supplies, no dominant "fear factor" to rattle nervous energy traders.

The fact that the price of a barrel of light sweet crude has doubled from $30 to near $60 in less than two years is largely about demand, experts say.

Part of the increase can be attributed to a new batch of increasingly heavy fuel users, namely China and India. But perhaps most notable is that Americans seem to be thumbing their noses at the gas lines of the 1970s and saying - at least for the time being - they are not willing to cut their use as oil prices climb.

It's a dynamic not seen before in the energy sector, one that worries oil executives and environmentalists alike - given that most refineries are running at full capacity.

"In previous years, we saw significant price spikes after oil strikes in Venezuela, unrest in Nigeria, and the two Gulf wars, for example," says Jeff Lenard of the National Association of Convenience Stores, which includes gasoline pump operators among its members. "Price spikes have always been supply driven - until now. For the first time, we're seeing higher prices entirely as a result of demand."

Driving vs. flying

The signs of unyielding US demand are everywhere. Analysts expect this summer's driving season to be as strong as ever. Take Patrick Amesur, for example.

He's visiting friends in Houston this week and decided to drive instead of fly the 1,200 miles from Miami.

As he pulls in to a west-side station to fill the tank on his Ford Explorer once again, he laments the price at the pump. "It would almost have been cheaper to fly," he says.

But high oil prices will not cause this stockbroker to trade in his SUV or change his driving habits. "To be honest, I never look at the price of gas," he says.

That underscores what Mr. Lenard is hearing from gas-station owners, who say they are selling the same amount of fuel, if not more, as prices increase. "People don't drive because they want to," he says. "They drive because they have to. And there is very little in the way of driving less that people can do."

Americans, too, seem much less willing to sacrifice these days.The generation that lived through the Depression and World War II were more accustomed to scrimping when needed. They lived closer to work and owned smaller homes and fewer automobiles. Even as late as the 1970s, when oil was tight, Americans put on cardigan sweaters and turned down thermostats.

Hard to break habits

Today, however, few seem inclined to change their daily habits. The youngest generation, in particular, may be the hardest to wean off oil. A high school graduation gift is often an automobile - and often not a fuel-stingy one.

"I remember when gas went over a dollar a gallon. We were all talking about riding our bicycles to work," says Ron Zolno, a partner at BRS Group, a consulting firm whose clients include Shell, Texaco, and Chevron.

But to his 17-year-old son who has been driving for a year, $2 a gallon is normal.

"The population can be separated into three sectors as far as prices go," says Mr. Zolno. "You've got the angry old people like me who know what prices used to be, those in the middle who have become desensitized to them, and young people who have nothing to compare them to."

Christina is in that first group and vividly remembers the "even- and odd-day" fill-ups during the oil embargo of the 1970s.

"Those were terrifying days," she says, poking her head into a new 8-cylinder Dodge Charger at a local Houston dealership. She is shopping for a new car and says she does pay attention to gas mileage - but that's mainly because she is concerned about the environment, not her pocketbook.

"We are a very spoiled nation, and we should know better," says Christina, who did not want to give her last name. She spends some time talking to salesmen and then hops in her 6-cylinder BMW and drives off.

Overall, auto sales have not slacked off over last year - although SUV sales have begun to decline slightly. "So there is some impact, but not a dramatic impact," says Paul Taylor, chief economist with the National Automotive Dealers Association. "Gasoline prices are not a particularly large consideration for new car buyers, who are spending, on average, $28,000 for a new light vehicle."

The economics of driving an SUV

He adds that the difference between a vehicle that gets 20 miles to the gallon as opposed to 40 miles to the gallon, if it they are both driven 12,000 miles a year, is about $600 a year.

For many people, that is simply not enough to make them switch vehicles. Energy still makes up a relatively small percentage of a family's budget. Despite recent increases, by historical standards the $60 a gallon price is still relatively cheap compared to the peak time of the 1970s, when adjusted for inflation.

"So it's hard for people to get excited about it," says David Stewart, a professor of marketing and consumer psychology at the University of Southern California. "I, for one, am not going to go out of my way to save 10 cents a gallon."

That may change, however, if people are shown standing in line for fuel, as they were during the oil embargo.

"Right now, there is just not that sense of urgency," Professor Stewart says.

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