Gas prices have finally dropped below $4 a gallon, but a slowing economy means weaker demand - the US government has cut its consumption forecast for a 4th time
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- US gas prices fell below $4 a gallon in August, but despite that, demand for fuel is decreasing.
- The US government slashed its 2022 gas consumption forecast for a fourth month in a row.
- Sky-high prices and a weakening economy are weighing on fuel demand.
The US government has cut its forecast for gasoline consumption this year for a fourth month in a row, even as fuel prices have finally dropped below $4 a gallon.
Gasoline consumption for 2022 is forecast to reach 8.83 million barrels a day, down from a previous estimate of 8.84 million barrels a day, according to the Energy Information Administration. This would mark little change from 2021's 8.80 million barrels a day in consumption, but a near-10% rise on demand in 2020, when the coronavirus crisis shut down almost all normal daily activity.
The EIA has cut its forecast for US gasoline demand every month since May, when it projected consumption would reach 8.91 million barrels per day.
American drivers have endured pain at the pump after US gas prices hit a record $5 a gallon nationwide in early June. The surging prices have kept drivers off the road and altered many consumers' other habits, like buying cheaper cuts of meat or cutting subscriptions.
In July, the American Automobile Association showed high gas prices were cutting into demand, with 64% of consumers surveyed saying they have changed their lifestyle in response. Out of that 64%, 90% said they were driving less.
That demand is unlikely to go up despite gas prices finally falling below $4 a gallon to $3.99 a gallon, according to GasBuddy in a sign that inflation could finally be cooling down.
"It's another sign that, for now, Americans are changing their driving habits to cope with higher pump prices," AAA said.
Meanwhile, the prospect of a global recession is playing a part in dampening consumer demand as they tighten their purse strings to cope with a slowing economy.
"What is clear is that the oil market is still struggling with both supply and demand uncertainty, and as a result the market is struggling to convincingly find direction. This uncertainty, combined with the lower traded volumes over the summer months, means that prices remain fairly volatile," said Warren Patterson, an ING commodities strategist.