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Analysis: U.S. drivers return to the road as fuel prices fall

Motorists drive onto the San Francisco-Oakland Bay bridge during morning commute hours in Oakland, California September 3, 2013. REUTERS/Ste
Motorists drive onto the San Francisco-Oakland Bay bridge during morning commute hours in Oakland, California September 3, 2013. REUTERS/Ste

By Edward McAllister

NEW YORK (Reuters) - A recovering economy and cheaper prices at the pump have boosted U.S. gasoline demand in recent months, following five years of decline, a change that some experts say could continue into 2014.

The economic slowdown and expensive gasoline had forced motorists to drive less or buy smaller, more efficient cars since 2007, but consumption in the second half of this year has been back on the rise.

People are driving further, tempted back behind the wheel by a 40-cent per gallon fall in gasoline prices since September. Pump prices on Thursday's Thanksgiving holiday were the lowest in three years, the Energy Information Administration (EIA) said last week.

From July to October, demand outstripped monthly government forecasts. Sales by refiners and other suppliers have shown year-on-year increases in six of the first nine months of 2013, the most monthly gains since 2010.

The increase cannot be found in all regions - gasoline demand in the East Coast continues to slump - but analysts say that in most of the nation there are signs of life.

"The slowdown in demand coincided with the slowdown in the global economy, and now that we are moving the other way we are going to see demand pick up," said Mark Vitner, senior economist at Wells Fargo, who expects demand to rise in 2014.

Much stands in the way of a sustained boost in gasoline consumption. Fuel efficiency continues to slice away at demand, and an aging population is expected to drive less in the long run.

Gasoline demand had been steadily declining since 2007 as motorists drove less and car fuel efficiency improved. The U.S. government still forecasts a 0.4 percent fall in gasoline demand in 2014.

But demand is expected to rise 0.5 percent this year, after declining by 0.8 percent to 10.5 million barrels per day in 2012, according to the EIA, the statistical arm of the Department of Energy.

In July, August and September of 2013, the distance driven per driver was higher than 2012, according to the latest data from the University of Michigan's Transportation Research Institute.

FUEL EFFICIENCY

That increase has counteracted improvements in fuel economy over the past year, said Michael Sivak, research professor at the University of Michigan.

"The wild card here is the price of gasoline. If it drops substantially, the amount of driving would increase and the demand for fuel-efficient vehicles would decrease," Sivak said, acknowledging that if prices rose the opposite would happen.

In the longer term, however, gasoline demand is widely expected to continue to be dented by improving fuel efficiency. Even pickup trucks have become more efficient in recent years, shadowing a steady improvement in cars and SUVs over the past decade.

New U.S. vehicles available in showrooms are on average 20 percent more fuel-efficient than vehicles introduced five years ago, according to AutoNation Chief Executive Mike Jackson.

Full-sized pickup trucks like the Ford F-150, the General Motors Co Chevrolet Silverado and the Chrysler Group LLC Ram 1500 pickup trucks have tightened fuel efficiency greatly in the last five years, according to Ford Motor Co sales analyst Erich Merkle.

"Gasoline prices have a short-term impact on consumer choices, but, long-term, a lot of it has more to do with the demographics of drivers and their needs," said Merkle.

(Additional reporting by Bernie Woodall in Detroit; Editing by Leslie Gevirtz)

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