Demand for Fuel Seems to Be Falling

Times Staff Writers

Hello, tipping point? Drivers’ demand for gasoline appears to have downshifted since Hurricane Katrina sent pump prices soaring above $3 a gallon across much of the nation.

Katrina initially sparked panic buying, sporadic shortages and televised images of long lines at some service stations. Then consumers pulled back as prices hit record highs, analysts said Thursday.

“America topped its tanks, and then the knee-jerk reaction was, ‘I’m not going to pay $3.19 a gallon for gas,’ ” said Tom Kloza, chief analyst at Oil Price Information Service, an energy research firm.

Demand was likely to taper off anyway because the Labor Day weekend marks the unofficial end of the busy summer driving season. In addition, gas prices already were at or near record levels even before Katrina hit Aug. 29.

In the aftermath of Katrina, at least one gasoline seller reported a 15% drop in sales over Labor Day weekend compared with a year earlier, Kloza said.


A random sampling of motorists and other commuters in Southern California confirmed that many were conserving or taking public transportation instead of using their cars.

“I’m driving much less,” said Natasha Tave, 30, as she paid $3.159 a gallon for premium gasoline to fill her Toyota Corolla at a Texaco station near downtown Los Angeles. “I drive straight home from work, and I don’t drive until the next day now.”

At L.A.'s historic Union Station rail hub, Kevin Smith of the Crenshaw district said he switched to the Metro Gold Line about two weeks ago, when the cost of driving his GMC Yukon sport utility vehicle to his job in Pasadena jumped to $125 a week.

“I was just trying to get to work, but after a week, I was like, ‘Hell, no,’ ” said Smith, 24. “Reality kicked in.”

The Energy Department issues weekly reports on gasoline demand and supplies, and many analysts expected its newest report Thursday to show a surge in demand during the four days after Katrina’s devastation, reflecting the panic buying.

Yet the agency’s statistics arm, the Energy Information Administration, reported Thursday that in the week ended Sept. 2, gasoline demand fell 4% from the previous week to 9.03 million barrels a day.

The Energy Information Administration also said that for the four weeks ended Sept. 2, demand inched up only 0.1% from a year earlier to 9.33 million barrels a day, an increase well below the 1.2% to 1.6% year-over-year gains reported in late August.

Analysts promptly labeled the data as suspect, contending that reliable numbers were hard to obtain in the days just after Katrina made landfall.

With about 20% of U.S. refining capacity either shut down or operating at reduced levels last week, compiling precise data was difficult, and “we question the accuracy of these numbers,” analyst Jacques Rousseau of investment firm Friedman Billings Ramsey & Co. said in a report to clients.

He and others said they expected that upcoming Energy Information Administration reports should provide a clearer picture of demand, which for now is confusing even some in the oil industry.

Gary Heminger, executive vice president of Marathon Oil Corp., said at an investor conference Wednesday that at some of its Midwest stations, customers rushed to top off their tanks in the two days after Katrina hit, bought very little gas the next two days and then filled up again before the holiday weekend.

“It’s going to be very difficult and take some time to understand what is happening with demand,” he said.

Meanwhile, prices of gasoline and crude oil futures edged higher in commodities trading after falling for several days.

The U.S. benchmark grade of light crude oil for October delivery rose 12 cents to $64.49 a barrel, and gasoline for October delivery inched up 1.33 cents to $2.036 a gallon.

The upswing came after the government reported no daily progress on the Gulf Coast’s overall effort to rebuild its damaged energy facilities, a stark reminder that the recovery is expected to take months and require enormous investment.

About 60% of the region’s oil production remained shut down, up from 57% on Wednesday, and the amount of natural-gas output that remained off line was unchanged at 40%, according to the U.S. Minerals Management Service. Four major refineries -- three in Louisiana and one in Mississippi -- are still out with no estimates of when they might restart, the Energy Department said, noting that the group accounts for about 5% of total U.S. production.

The big question is whether the drop in drivers’ demand for gasoline reflects a temporary reaction to Katrina or a longer-term change in motorists’ habits. The answer could lie in how long pump prices, which have remained high despite the recent drop in commodities prices, stay at current levels.

The average price of self-serve regular nationwide slipped to $3.03 a gallon Thursday from $3.042 on Wednesday, and the California average inched down to $3.05 a gallon from a record $3.052, according to AAA.

Metrolink officials have not seen an increase in ridership because of gasoline prices, spokesman Francisco Oaxaca said.

“Prices would have to stay up for several months in order for commuters to make a long-term decision to leave their cars behind and ride Metrolink,” he said.

“People still have to go to work and go to school,” said Walter McManus, director of the Office for the Study of Automotive Transportation at the University of Michigan. “And if it’s a short-term reaction, you can adjust your discretionary driving, as in whether you go to a movie or watch HBO.”

But there is a growing feeling among consumers that even though Katrina “was a temporary worst-case scenario, our expectations now are not for lower prices but higher prices,” he said.

That has led some motorists to change their lifestyles.

“I haven’t driven my car in a while because of gas,” said Art Salinas, 26, of Highland Park as he paid $3.259 a gallon for regular at a Chevron station in Los Angeles. “I just use it to run errands.”