Wednesday, January 4, 2012

Gasoline Prices and Auto Sales

Some news stories have suggested that the strong sales of new automobiles in December shows that consumers are getting comfortable with the low gasoline prices of the last three years. If this is indeed the thinking of car buyers, a 20 percent increase in the price of gasoline over the next four or five months could be enough of a jolt to send sales numbers back down to their previous levels. The general availability of all-electric cars later this year will not do much initially to boost sales. Battery prices need to fall a bit farther before electric cars can break out of their niche, and that breakthrough is not likely to occur this year.

There are various scenarios by which oil gasoline prices would rise by 20 percent or more. One that I have mentioned several times is the possibility of a strong recovery in the U.S. job market. If more people are driving to work in the United States, that has a big impact on global oil consumption. Unfortunately, this is not the only way oil prices could rise. If Iran follows through on its plan to blockade the Persian Gulf, even if it is not entirely successful, that alone could send oil prices up by 20 to 30 percent.