Drivers to continue conserving gas, even as prices fall

Gasoline prices are advertised at a gas station near Lindbergh Field as a plane approaches to land in San Diego, California in this June 1, 2008 file photo.

WASHINGTON (Reuters) - Motorists faced with $4 gasoline have embraced conservation and consumers are unlikely to easily return to their old gas-guzzling ways now that pump prices are retreating from record levels.

As U.S. gasoline prices burst above $4 a gallon this summer, U.S. gasoline demand staged its biggest drop in more than a quarter of a century.

But even with gasoline prices falling to their lowest level in 16 weeks to average $3.69 a gallon on Monday, Americans will continue to ride public transportation and buy more fuel-efficient cars.

"There was a period when SUVs were a kind of status symbol and everyone in the suburbs wanted one," said James Hamilton, an economics professor at the University of California at San Diego. "I think that has really changed. I think there are a lot of people kind of embarrassed socially now with the kind of car they have."

U.S. motorists drove 12.2 billion fewer miles in June compared with a year earlier, while gasoline demand shrank by an average 800,000 barrels a day during the first half of this year, the biggest decline since 1982, because of soaring pump prices and a weak economy.

In the 1990s the price of gasoline seemed cheap to consumers as incomes rose. But, when gasoline began its steep climb this year, Americans could no longer ignore the cost.

In July, U.S. auto sales fell to a 16-year low as Americans turned away from fuel-intensive SUVs and pickup trucks. In a reversal of the past decade, cars sales outpaced truck sales at a ratio of 55 percent to 45 percent.

The move toward more fuel-efficient cars will have an enduring impact on U.S. gasoline demand, Energy Information Administration head Guy Caruso told reporters this week. The EIA is forecasting for the first time that gasoline demand will continue to decline in the long term.

"Some of it's permanent, but some of it is highly dependent on two things: the price, but probably even as important is personal disposable income," he said.

Americans made a similar shift to smaller cars during the energy crisis of the 1970s. By the early 1990s, however, gasoline prices had dropped significantly and Americans began to prefer larger vehicles.

There is concern that, if prices keep falling, some Americans would likely revert back to their old ways.

But Ken Medlock, energy fellow at Baker Institute at Rice University, said consumers burned by $4 a gallon gasoline may be more cautious than in the past.

Medlock said people will be more conscious of conservation because, if prices spike again, they "don't want to be riding around in a Hummer, when they could be driving something fuel-efficient."

The giant Hummer SUV may be one of the most identifiable brands in the long line of gas guzzlers. But in another sign of the times, General Motors has put the brand on the block and two investors from the oil-rich Gulf Arab region have expressed interest.

The EIA sees gasoline demand falling to 9.17 million barrels per day this year, from 9.29 million barrels in 2007. In 2009, demand is to fall again, to 9.15 million barrels.

"Even though, as prices fall, we'd expect some increase in travel, unfortunately, household budgets have been strained by these high prices," said Tancred Lidderdale, senior economist with the EIA.

Americans have also turned to public transport in record numbers to save money and are unlikely to alter their new money-saving habits. Ridership on public transportation rose 3.4 percent in the first three months of 2008, according to the American Public Transportation Association.

Virginia Miller, a spokeswoman for the group, noted that fuel prices spiked in the spring of 2006 and public transit ridership rose. By the end of the summer prices declined, but ridership had not.

"As gas prices came down, they could have chosen to go back to the car, but for the most part they didn't, and gas prices were significantly less then than they are now," Miller said.

Still some worry that if gasoline prices fall below $3.50 a gallon, Americans will leave their energy-efficient ways behind.

As well, Republican presidential hopeful John McCain has struck a cord by mocking the idea that Americans need to do things like inflate car tires to save gas, saying the solution was more drilling and more supply.

"Everybody wants to consume gasoline and they would prefer to have a larger vehicle, so consumers don't give up the wanting," said Mary Novak, managing director of energy services for Global Insight. "The thing that makes them give up the wanting is the price."

(Editing by Walter Bagley)