Also, the dollar has increased by 7% against the euro in the last month, which is part of the reason for the decrease in the price of crude oll (7% is about $8). In the short term, I expect oil to decline a bit more as global economic activity declines.

In the longer term, the biggest effect on crude oil prices is likely to be the race between efficiency (e.g. CAFE, PHEVs) and increasing global VMT. Any sane US President would stop restraining the EPA and CARB. That could lead to 25% of the US vehicle fleet being PHEVs in 2030, which could represent over a million barrels a day being saved in 2030.

First, the VMT. It’s not a perfect measure –several hundred points across the country are measured for traffic density — although no body disputes that US driving is down. But these VMT numbers are being pushed out by the DOT to make an argument for toll roads and congestion pricing. They want to claim that the gas tax is collapsing so they need more money. It is better to look at the Visa/MC numbers, or just overall petroleum numbers, to get a sense of how much less Americans are driving.

When you look at gas tax revenue, it is down 1.5%. Yes, that is about 800K b/d of oil — a huge amount, but what it represents is not a tipping point. This is just large SUVs not being used for daily driving. I remember an old canard from Harpers that an improvement of 1 MPG by every SUV in the US would save 800K b/d of oil. Even if you accept the VMT miles, it comes out to something like 10 miles less per month for every car in the US, which is not a significant number.

Finally, 800K b/d drop in demand in the US is huge. To give you an idea, that is about the level of TOTAL chinese petroleum imports — and keep in mind that the bulk of Chinese petroleum use in still electricity production. Demand in the Middle East is up, but these are not significant markets. Why do I call that misleading? Because marginal improvements of VMT and MPG in the US have huge implications for global markets — and proponents of hybrid cars don’t want us to believe that. Moving from v8 SUVs to 4 cylinder cars is a great good than moving to plug in hybrids.

All that soft, pandered Americans have to do is change their thinking habits a bit. That is: think. Think about chaining trips and driving a little less, and see what happens?

Best,

D

And yes, these marginal improvements are huge, given the size of the US market. Again. if we take Obama’s advice, check out tires, and save 1 MPG, that is probably going to save 1 million b/d of oil a month.

Or better yet, push towards a future where we drive like the Brits: about 9000K miles a year, rather than the 14K we are driving now.

switching to a hybrid probably wouldn’t save me enough emissions to offset the production of the vehicle itself.

People can make short-term adjustments to get past a crisis, but will then quickly revert if the crisis abates. If prices continue to fall, pent-up demand for egregious road trips will push gasoline usage higher yet again, and put us right back where we were energy-wise.

This has been the pattern for decades. People get worked up about a gas price spike, and cut back for a short time. Then prices drop slightly and we go back to normal. Then prices creep slowly but that’s OK, because by then we’re used to it.

I’m suggesting that three months of high gas prices is not enough to permanently change behavior or buying habits.

I bring up the UK model: 9K miles a year. Gas prices in the UK are in the $9 a gallon range. If you think there is a correlation between gas prices and miles driven, that would take a $5 in taxes to get up to that price point.

In reality, I think a gas tax of $3-$4 in the US might cut driving back to a 9K miles point.

But as Lamont point out, at 9K miles a year a hybrid or plug-in car doesn’t make economic sense for most people — as long as those cars are being priced at a premium.

Although work trips are only ~25% of all trips, they are a much larger share of VMT, due to the live-work gap.

I agree that gas is too cheap, but the bottom two income quintiles in this country would be in a world of hurt. The taxes must go up slowly, to enable alternatives to auto dependency to be emplaced.

Best,

D

It would be patently unfair to raise gas taxes without buttressing our public transportation systems.