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Time to Throttle Back on Gas?

With U.S. gas prices nudging just pennies away from the landmark level of $4 per gallon, will Americans start to pull back on discretionary driving habits? We polled a dozen economists, strategists, consumer experts, and traders to ask that very question. Here are some highlights of our conversations:

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CNBC

Hussein Allidina, head of commodity research, Morgan Stanley: "Everyone has this notion in mind that there’s a psychological limit at which consumers throttle back a bit … it’s the $4 to $4.50 range."

"It’s not clear that $4 indicates a break in the consumption pattern. What we do know is that employment is the largest driver of consumption. If employment is improving, then $4 won’t be the end of U.S. gasoline demand."

"Hypothetically, if we move to $5 per gallon, demand will ease. But if we stay there for the next three years, demand returns. So I personally don’t think there’s a magic number where you’ll see gasoline fall off a cliff. I think the denominator—income—is very important."

Mark Cooper, director of research, Consumer Federation of America: "A 10 percent rise in price will elicit a 2 percent reduction in demand. Maybe it’s more extreme between $3.50 and $4 [per gallon], but … this notion about some magic threshold number is just plain wrong. Once you buy your house, and once you buy your car, your level of gas consumption is pretty fixed."

John Kilduff, founding partner, Again Capital: "We’re already starting to see some demand destruction out there. I think $4 is the number, or maybe it’s $4.10 or $4.15. It doesn’t matter the income level—everyone’s talking about it right now."

"[Oil] has been on a spectacular run and so much of this, for me, is dollar driven. To the extent we’re reaching a bottom on the dollar, we’re reaching a top on energy."

Paco Underhill, founder and chief executive, Envirosell: "The average price is going to go over $4. And we as a people have to look at that and go, yes, that may decline, but it’s not going to go back to its pre-recessionary roots. I think our government is going to have to end up putting a tax on gasoline. The only way we’ll be able to rein consumption in is through pricing."

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"I think it is not just the price per gallon, it is the cost of being able to fill up the tank [that drives behavior]. When all of a sudden it starts getting to be $60 or $70, that starts to be some serious money. And when blue-collar America faces the fact that filling up a tank of gas is almost the equivalent of a day’s work, that has to be a pretty daunting reality."

Tom Kloza, chief analyst, Oil Price Information Service: "It’s a moving target ... there’s a point at which people think they’re being used; there’s a point when they might cut back on purchases; and there’s a point when they’ll actually change their consumer behavior."

"Three dollars is when it becomes part of the national discussion. I think you start to see actual demand destruction between $3.50 and $4. And over $4 is when you see people start to carpool, conserve dramatically, SUVs will sit on the lot, and people start demanding a political pound of flesh on the issue. We are the verge of that threshold right now. People have regarded this as an entitlement: the right to cheap oil."

Joe Lavorgna, chief US economist, Deutsche Bank: "The tipping point for consumers is $5 gasoline. Not only is that the key level where consumer demand is impacted, we think it’s also the tipping point where the economy would go into recession."

"Four dollars gas is a big number, but we’ve been there before, and the reason higher energy prices haven’t made a bigger impact on consumer demand is for two reasons: the job market is a lot better, and consumers have essentially received an extra $90 billion in disposable income thanks to a temporary social security tax cut that congress passed last December."