US, Inflation-Driven Demand Destruction Has Begun

Full-fledged Driving Season Arrives in the US
Gasoline Demand Down 7.3% Over 4 Weeks
But Strong Will for Memorial Day Holiday Remains

[Asia Economy Reporter Kim Hyun-jung] Amid the sharp rise in international oil prices, American drivers are changing their daily routines by reducing the frequency of driving for commuting or private gatherings. This is seen as the beginning of so-called 'demand destruction' due to inflation (price increases) leading to cutbacks in spending.

On the 29th (local time), the Financial Times (FT), citing the Energy Information Administration (EIA), reported that gasoline demand over the four weeks ending on the 20th of this month averaged 8.8 million barrels per day, down about 7.3% (700,000 barrels) compared to the previous year. Compared to the previous week, it decreased by 3%.

International oil prices have recently surged sharply due to worsening supply-demand imbalances caused by Western economic sanctions on Russia and the recovery of daily life from COVID-19. As of the 28th (local time), the US national average gasoline price was $4.61 per gallon, more than 50% higher than the previous year. In California, the average price exceeded $6 per gallon. Especially ahead of the US Memorial Day weekend on the 27th, the upward trend in oil prices accelerated. According to the US Energy Information Administration (EIA), this is the highest price since 2012 when adjusted for inflation.

The rising prices are putting pressure on American drivers. According to FT, the average monthly gasoline consumption per US household is 90 gallons. This is a large amount compared to other major countries and amounts to $414 (about 520,000 KRW) at current oil prices. Patrick DeHaan, a petroleum analyst at US oil price information company GasBuddy, said, "High prices appear to be causing demand destruction," and forecasted that holiday weekend demand could be 7-13% lower than in 2019.

[Image source=Reuters Yonhap News]

Consumer indicators are also slowing down. The University of Michigan announced that the final Consumer Sentiment Index for May recorded 58.4, the lowest since 2011. The Current Economic Conditions Index also stood at 63.3, the lowest in 13 years. Joanne Shi Richard Curtin, director of consumer surveys at the University of Michigan, said, "We confirmed a decline in consumer sentiment at the beginning of the month," adding, "The decline is mainly due to inflation concerns and indicates that opinions on future economic outlook as well as current conditions for housing and durable goods purchases remain negative."

Tom Kloza, chief energy analyst at oil market information firm Oil Price Information Service, expects President Joe Biden and his administration to propose measures such as reducing the federal gasoline tax or exempting summer pollution regulations. Reports also stated that the Biden administration is discussing with local refiners plans to support the reopening of some closed refineries. Analyst Kloza explained, "The term 'demand destruction' has returned," and said, "At some point, the administration will pull one of these levers."

However, Americans are expected to adjust their usual daily consumption but not cancel holiday plans during the Memorial Day period. The American Automobile Association (AAA) forecasted that about 35 million people will be on the road during the Memorial Day holiday, a 5% increase compared to the previous year. The reports viewed this as driven by vacationers' desire for freedom after the pandemic. Analyst Kloza explained, "There is a prevailing attitude among the public that 'I deserve to enjoy my vacation.'"

This content was produced with the assistance of AI translation services.