WASHINGTON – High gasoline prices may dent economic growth, but consumers' fuel appetite is still strong.
Those trends are likely to persist, experts said, as average nationwide pump prices approach $3 a gallon — a threshold once feared to be disastrous for motorists and potentially the economy.
Citigroup Smith Barney senior economist Steven Wieting said the conventional wisdom that $3-a-gallon was some kind of tipping point "has been largely overstated."
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Sonja Hubbard, chief executive of E-Z Mart Stores Inc., which owns 319 gasoline stations across Arkansas, Louisiana, Oklahoma and Texas, said, much to her surprise, gasoline sales continue to rise. But she noted negative consequences, too: sales of food and drinks, which often make up more than half of a gasoline retailer's profits, have stalled out since May.
The Energy Department released data on Wednesday that showed an average of 9.6 million barrels a day of gasoline being supplied to the market over the past four weeks, a period of weak sales for the world's largest automakers and retailers. That is 1.7 percent more gasoline consumed than during the same period a year ago.
While gasoline demand is not expected to collapse, oil analysts caution that weakening economic growth could temper soaring energy prices over time.
"It's kind of a slower, more lagging impact," said Antoine Halff, director of global energy at Fimat USA in New York.
Economists say neither gasoline demand nor the economy have cratered in the face of soaring fuel prices because energy costs are only a small percentage of the average U.S. household budget. Consumers have been helped by relatively low interest rates and low core inflation, though both of these indicators are rising — trends that could augur further weakness in the economy.
The notion that $3 a gallon is a psychologically significant level that causes motorists to cut back on their driving gained currency last summer after hurricanes that slammed the Gulf Coast knocked out refineries and sent gas prices soaring to a record average of $3.07 in early September. A decline in gasoline consumption soon followed.
This time, the advance toward $3 has been more gradual and so consumers have had time to adjust their mindsets and budgets, analysts said.
Wachovia Corp. economist Jason Schenker said motorists cannot instantly change their lifestyles — the type of vehicle they drive, the distance they drive to work — and so "consumption is essentially fixed."
"Even now, SUVs and light trucks are among the majority of vehicles sold," he said.
Pump prices are well above $3 a gallon in many parts of the country, but the nationwide average for regular gasoline is $2.96 a gallon.
Most energy experts do not foresee a dramatic correction in oil prices anytime soon because of tensions between the West and Iran over Tehran's nuclear program and concerns that Gulf of Mexico hurricanes might once again disrupt U.S. fuel supplies.
But some analysts say red-hot energy markets are vulnerable to a cooling off as inventories of crude oil climb in the U.S. and abroad.
The U.S. Energy Department said Wednesday that domestic crude-oil inventories were at 335.3 million barrels last week, or 2 percent above year ago levels. In a separate report, the International Energy Agency said the world's crude supply cushion could triple to 6 million barrels a day over the next five years, potentially giving consuming nations more breathing room in the event of a supply interruption.
"We've got some pretty lush crude inventories," said Wachovia's Schenker, who believes the summertime surge in gasoline prices could dissipate by fall if there are no major hurricanes. And if Iran tones down the rhetoric in a diplomatic standoff with the West over its nuclear ambitions, "oil prices could move $10 in a matter of days," Schenker said.
For now, oil prices are stubbornly propped up above $70 a barrel, and the world is consuming roughly 85 million barrels a day — one-fourth of which is burned in the U.S.
"If demand was lower, the price would be a lot lower. But as long as demand is like this, you're not going to see any pullback in price," said Michael Lynch, president of Winchester, Mass.-based Strategic Energy and Economic Research.
Although motor-fuel consumption is holding up, some major U.S. corporations are signaling that high energy prices are hurting their businesses.
Wal-Mart Stores Inc., the world's largest retailer, blamed disappointing June sales on the fact that its shoppers had less discretionary income because of rising energy prices and interest rates. The same factors influenced a 10.5 percent decline in June auto sales, with General Motors Corp. and DaimlerChrysler AG's Chrysler Group suffering the biggest blows.
Citigroup's Wieting said the retail spending data from June were actually not that bad under the circumstances.
"We definitely had some softer spending, but it has been in the presence of surging gasoline prices," he said.
Wieting forecasts gross domestic product growth of 3 percent for the second half of 2006, compared with 3.2 percent during the first half.
Nomura Securities economist David Resler is less sanguine. He expects GDP growth to come in at 2.8 percent in the second half.
"It's an indication to me that consumers are in fact changing their behavior," he said.
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