Drivers Keep On Pumping, Paying

Times Staff Writers

What will it take?

At a Shell station in downtown Los Angeles, $2.37 a gallon wasn’t enough to stop Gladys Paz from filling up her 15-year-old Geo Storm with regular-grade gasoline. “I need my car,” said the working mother of two.

It was the same story 6,000 miles away in Shanghai, where the government just hiked the state-controlled price to about $1.67 a gallon. That’s a lot in a country where a civil servant makes less than $500 a month, but Luyi Lu, a model, shrugged as she watched her BMW sport utility vehicle being washed. “I still have to drive,” she said.

In the U.S. and China, the world’s biggest and second-biggest consumers of oil in all its forms, the financial pain of tanking up hasn’t dented demand.


The U.S. will burn an average of 386 million gallons of gasoline a day this year, up nearly 10% from 1999, the Energy Department estimates. Chinese oil consumption soared nearly 17% last year and is expected to keep climbing at a double-digit rate for at least the next year or two.

So what’s the magic number? Analysts speculate that in the U.S. motorists might start changing their behavior if gasoline crossed the psychologically potent line of $3, which would mean crude oil would be selling for a lot more than the current record high of nearly $57 a barrel.

Tow-truck driver Jesse Gurrola agreed that once a gallon commanded that much, “that’s it -- I think I’d have to carpool or maybe take the bus.”

It’s true that pump prices consistently topping $2 have taken something of a toll. U.S. drivers’ interest in the largest gas-guzzling SUVs has recently been waning as sales of hybrids, which run on both gasoline and electricity, have gained ground. Ridership on the Metrolink commuter train system is up 6.8% from a year ago and 10% of the new customers cite the cost of gasoline as one reason to take the train, according to a survey it completed last week.

“This is the first time gas prices have shown up to be an issue” in the survey, said Metrolink spokeswoman Denise Tyrrell.

But Americans have hardly turned into super-conservationists. One reason: “Consumers are conditioned that the prices will come back down, because they’ve always come down in the past,” said Tom Libby, a senior director of Power Information Network, an affiliate of the research firm J.D. Power & Associates in Westlake Village.


Crude oil’s recent race to new heights knocked off a record set only last October, which itself marked the doubling of oil prices in a mere 12-month period. On Thursday, crude oil for May delivery closed at $54.84 a barrel on the New York Mercantile Exchange, up 48% from a year earlier. The average price of self-serve regular gasoline in California was $2.38 a gallon Friday, AAA reported, and nationwide it was a record $2.125 a gallon.

Worldwide demand for oil is expected to average 84.3 million barrels a day in 2005, up 2.2% from 82.5 million last year, according to the International Energy Agency, a Paris-based group that advises industrialized nations on energy.

“When oil went from $30 to $40 a barrel, nobody changed their consumption habits and everyone kept driving and making widgets,” said Barry Ritholtz, chief market strategist at Maxim Group, an investment firm in New York. “And at $56 there’s only a slight drag.”

Why? First, oil and gasoline remain well below record highs when they’re adjusted for inflation. The nearly $40-a-barrel oil that rattled the world in 1980 would top $90 in today’s dollars. Gasoline that cost $1.35 a gallon 25 years ago would cost $3.20 in today’s currency.

In those terms, “the price of gasoline is not all that high,” said Michael Flynn, a research scientist at the University of Michigan’s Office for the Study of Automotive Transportation. Indeed, the American Petroleum Institute contends that gasoline is a bargain because over the last two decades, prices of beer, cereal and postage have risen at much faster rates.

Industrialized nations also are much more fuel-efficient than in the 1970s, when oil shocks rocked their economies. And efficiency gains haven’t been limited to cars and airplanes but to other petroleum-driven functions, such as power generation and home heating.


So a barrel of oil or a gallon of gasoline might be expensive, but it goes a lot further than it did a few decades ago.

“In terms of per unit of output -- whether you’re talking about the number of miles flown by an airplane, or electricity generated by a power plant -- we use about half as much energy as we did in the ‘70s,” said Nariman Behravesh, chief economist at Global Insight Inc., an economic analysis firm in Waltham, Mass.

Behravesh’s guess is that oil would have to reach $70 a barrel to really change the way Americans consume energy. “If we stayed at that price, then you would start to see economic growth slowing down.”

There are glimpses now of how that would happen. Airlines, truckers and air-freight shippers have tacked on surcharges to their prices and are trying to conserve more fuel than before. Atlanta-based United Parcel Service Inc. is increasing vehicle maintenance and installing a software system to design more efficient delivery routes.

In China’s factory city of Dongguan, plastics dealer Wan Yibiao has seen manufacturers turn to cheaper recycled materials because the price of some plastics, which are made from oil, have risen by as much as 65% in the last two years. Some companies are hoarding the stuff.

Still, Wan says, demand for plastics has increased more than 10% in each of the last two years and Wan has added two to his staff of 10 to stay on top of all the orders, especially from makers of toys and home appliances.


To be sure, global demand for Chinese-made goods is a huge driver of the country’s energy thirst, undermining official efforts to promote conservation through various measures, such as fuel economy rules for cars.

“Energy saving has not yet become a widely accepted value or virtue” in China, said He Jun, a senior analyst at Anbound Strategic Consulting Co. in Beijing.

But price can be a powerful incentive. Motorists in China, whose love affair with the automobile is relatively new, can’t take many more hikes.

Shanghai police officer Chen Jimei said that keeping his 1998 Daewoo hatchback gassed up would cost $60 a month -- about 15% of a typical cop’s salary.

“It’ll be a burden,” Chen said. If prices keep going up, he added, he might have to ditch his car and go back to his bike. “That would be the ultimate solution.”

For Tony Viray, a postal worker and diabetic living near downtown Los Angeles, the burden is already too much. When gasoline got to the point that he couldn’t afford frequent trips to his longtime physician in Baldwin Park, he switched doctors.


The rising price of fuel “really hurts me, because I’m not earning too much,” Viray said. “There’s no hope of it going down in the future, right?”


Times staff writers Peltz and Lin reported from Los Angeles and Lee reported from China. Times researcher Cao Jun in Shanghai contributed to this report.