- The surge in US gas prices has caused demand destruction, a new survey by the American Automobile Association shows.
- The AAA found that 64% of people surveyed last month had altered their lifestyles, with many driving less.
- But that demand destruction is in turn contributing to a fall in oil and gas prices, which are down sharply from June highs.
High gas prices are triggering so-called demand destruction, according to an American Automobile Association survey, which showed Americans are changing their lifestyles to consume less fuel.
The AAA surveyed more than 1,000 Americans last month, with 64% saying they had made changes to their lifestyle in response to the jump in gas prices.
Out of that 64%, almost 90% said they were driving less. People also said they were postponing vacations, combining errands, and reducing shopping trips. The survey data was released Monday.
It is one of the clearest signs yet of demand destruction — that is, the phenomenon whereby high costs push people and businesses to consume less energy, reducing demand.
Gas prices have soared in 2022 as oil prices have risen sharply as a result of Russia’s invasion of Ukraine and the ongoing economic recovery from the coronavirus pandemic.
The average price at the pump soared to a record high of above $5 a gallon in the middle of June. Bottlenecks at oil refineries, which turn crude oil into gasoline, also added to those price pressures.
However, prices have since fallen relatively sharply, to $4.33 a gallon on Tuesday, according to the AAA.
A drop in global oil prices, as a result of both demand destruction and fears that the world economy is about to slow sharply, has been the main driver. Nonetheless, gas prices remained 37% higher than a year ago on Tuesday.
More relief may be on its way for US drivers, with some analysts expecting oil prices to fall further this year.
Citigroup’s base case is for Brent crude, the international benchmark, to fall to $85 a barrel by year-end, from around $107 on Tuesday.
Morgan Stanley downgraded its oil price forecasts on Monday. It now expects WTI crude, the US benchmark price, to slip to $97.50 a barrel in the fourth quarter, from around $98.30 on Tuesday. The bank previously expected WTI to stand at $117.50 in the final three months of the year.
“Over the last year we have argued that oil supply would be tight-enough-for-long-enough that some demand erosion needed to take place,” the bank’s global commodities strategist Martijn Rats said in a note to clients.
“In June, prices reached levels that achieved just that, and demand appears to be softening in response.”