Tipping-Point Shock

A bus driver fills up in Northwest Washington with regular unleaded at $3.59 a gallon, for a grand total of $98.31.
A bus driver fills up in Northwest Washington with regular unleaded at $3.59 a gallon, for a grand total of $98.31. (By Haraz N. Ghanbari -- Associated Press)
By Steven Mufson and Jon Cohen
Washington Post Staff Writers
Thursday, May 24, 2007

Even with high gas prices causing financial hardship for many Americans, most motorists still plan to stick to the roads at least until pump prices climb another dollar, according to a new Washington Post-ABC News poll.

The poll found that nearly six in 10 Americans say that near-record gasoline prices are a hardship, but only 11 percent said that soaring prices would curtail their driving habits in the coming weeks. Three in 10 said they might skip a summer road trip.

The average price that drivers said would compel them to significantly cut back on their driving was $4.38 a gallon. In the western United States, where gasoline prices are typically higher than in the rest of the country, the average respondent said the price would have to hit $5.12 a gallon.

In fact, the federal Energy Information Administration (EIA) yesterday reported that gasoline consumption last week was up 2.6 percent from the same week a year earlier, slightly higher than the trend so far this year.

Oil companies and analysts have long debated where the tipping point is for gasoline -- the price that would cause a significant drop in consumption or prompt motorists to opt for autos with better gasoline mileage.

Oil companies refuse to divulge their internal estimates of that price, which are competitively sensitive. But a senior executive from one of the nation's top five gasoline marketers said last month that his company's estimate used to be $3 a gallon. With the nationwide price of unleaded regular 22 cents higher than that and little impact so far on gasoline consumption, the company's forecasters have been working on a new estimate.

"People used to think the tipping point was $3 a gallon. It wasn't," says Frank Verrastro, senior energy associate at the Center for Strategic and International Studies (CSIS) and a former executive at a large independent oil refining company. "People at the bottom end of the income scale are making other choices. The ones with discretionary income are upset but are buying the gasoline along with their lattes."

The poll shows that the 44 percent jump in pump prices since January has left Americans generally unhappy and four in 10 of them angry.

"To have the CEO of Exxon say we're going to make this profit and that's just too bad for you, that's just blatant. It goes back to the days when the robber barons were around," says Dave Grafton, a retired Baltimore math teacher who lives in Catonsville, Md. But Grafton says that he and his wife still plan to drive to Maine at the end of the summer. "It's a once-in-a-lifetime thing," he said. If gasoline prices top $4 a gallon, however, he said he will reconsider.

The Post-ABC News poll was conducted by telephone May 17-21 among a random national sample of 1,007 adults. Results from the full sample have a margin of error of plus or minus 3 percentage points.

The surprisingly resilient consumption of gasoline is explained by two factors. First, though prices are just shy of the modern inflation-adjusted peak set in March 1981, Americans' incomes have risen over the past quarter-century. The share of the U.S. household budget devoted to gasoline and oil spending fluctuated between 3.4 percent and 3.6 percent throughout the 1960s, rose to 5 percent in 1981 after the two oil price shocks of the 1970s, then fell back to an all-time low of 2.1 percent in 1998. Last year, it was up to 3.8 percent.

Second, Americans regard most of their driving as essential, not discretionary. With the development of suburbs and exurbs, where there is little public transportation and shopping is done at distant stores or malls, people need cars for almost every outing.

Mary Benavides of Fresno, Calif., who drives a Ford truck, said that she has to drive six miles to get to the nearest store. Jack Jones, a financial counselor in Berkeley, said he drives 36 miles each way to get to work in San Francisco.

Still, some motorists are feeling the pinch, and many are reducing other purchases or not making certain trips. Benavides said that she used to visit her daughter, who lives about 40 miles away, every three days. Now she goes once a week. Jones said he had stopped cruising around in his BMW convertible on the weekends.

Ann Gastineau of Wilmington, Ind., said she used to drive 10 miles or more across town to parks or malls about three or four times a week. Not anymore. "Now we walk around the neighborhood," she said. "I try not to drive if I can help it."

In the poll, 43 percent of those responding, including more than half of those in households with annual incomes under $75,000, said they were paying for gasoline by trimming other expenditures. Twenty-two percent said they were saving less money in order to pay more for motor fuel.

When gasoline prices rocketed after Hurricanes Katrina and Rita in 2005 and then again last summer, the growth in U.S. gasoline demand slowed slightly, said Tancred Lidderdale, an analyst with EIA. But, he added, the effect of higher prices was "overwhelmed" by growth in income, population and employment. "We wouldn't say that conservation is going to be our knight in shining armor in the next month," he said.

"It will take a sustained higher price for people to rethink" their behavior, said Verrastro, of CSIS.

High prices were on the agenda yesterday in the House of Representatives, which approved by a 284-to-141 margin legislation that would make gasoline price gouging a federal crime punishable by up to 10 years in jail and $150 million in fines.

The poll found that a third of Americans blame the oil companies for high prices. Yesterday the Joint Economic Committee held a hearing on whether to break up the major oil companies. Thanks to a series of mergers, the five biggest oil refiners now control 55 percent of U.S. market, up from a third in 1993, the committee chairman, Sen. Charles E. Schumer (D-N.Y.), asserted.

"Even as oil prices are dropping, gas prices are going through the roof," Schumer said. "My instinct tells me that a reconsideration of oil company mergers in the last two decades may be in order."

Michael A. Salinger, director of the bureau of economics at the Federal Trade Commission, replied that the structure of the industry had not played any significant role in the rise in prices. "I know this is a tough sell, but I don't think people realize how lucky they've been to have had prices as low as they've been" during the period since the 1981 price peak, he said.

Gastineau, the Indiana woman who took part in the Post-ABC survey, certainly wasn't feeling lucky. "It's kind of taken me aback," she said of the recent surge in prices. "In the last couple of days it's gone up like 40 cents. Hello? Because Memorial Day weekend is coming? They're trying to squeeze every penny out of us, and it's just not right."

Polling analyst Jennifer Agiesta contributed to this report.

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