As a US economic rebound stalls and threatens to spiral into recession, oil demand in the world’s top consumer may be slipping into an irreversible decline.
Last year’s fledgling recovery in US oil usage when demand rose 400,000 barrels per day made up for only a part of the 1 million barrels per day demand drop during a year of economic turmoil that began in August 2008.
Until recently, most analysts believed a healthier economy would push US oil use higher this year and next before tighter environmental regulations, increased use of bio fuels and tougher fuel efficiency standards kick in later this decade to lower demand permanently.
Instead, a sour economy may turn last year’s demand growth into a one off. With US manufacturing and service sectors slowing, a recent S&P downgrade on US debt and a series of stock market falls that have rattled consumer confidence, the odds are tilting toward short term declines as well.
Last week, the US Department of Energy lowered its forecast for US oil demand from growth to decline in 2011. It also cut its forecasts for growth in global oil demand as did the Organization of the Petroleum Exporting Countries and the International Energy Agency.
Mr Rick Mueller of Boston based consultant Energy Security Analysis Inc said that “We see US oil demand falling this year and, later, settling into steady declines after 2015. It’s all about the transportation sector and the trends point to lower oil use.”
US mandates require 36 billion gallons of renewables like ethanol be blended into motor fuel by 2022 up from 14 billion gallons this year. The Mr Obama administration has also boosted fuel economy standards for passenger vehicles to 54.5 miles per gallon by 2025, more than double current standards.
Limp demand in the United States and Western Europe won’t fully offset growth in developing countries like China and India whose appetite for crude nearly guarantees world demand will keep climbing.
Last year’s US growth accounted for less than one fifth of the rise in global oil demand, which was up 2.3 million barrels per day. But with the US still burning more than 19 million barrels per day twice that of No 2 oil consumer China slower demand here could further hammer US oil futures which have already fallen by Q1 since hitting USD 114 per barrel in April.
Mr Adam Sieminski of Deutsche Bank said that until the recent slowdown, consensus forecasts saw US oil demand up around 100,000 barrels per day this year as GDP grew about 2.5%. If you take that GDP estimate to 1.5% instead it could leave no growth in US oil demand.”
Mr Tim Evans of Citi Futures in New York said that “For a long time the premise has been that demand growth will outpace supply but it might be the other way around. Barring an acute double dip recession, few analysts expect US demand to repeat the radical declines of 2008 or 2009. Last year, US demand rose for only the first time since 2005 when it peaked at 20.8 million barrels per day but had still fallen more than 8% since then.
Mr Peter Beutel of energy consultancy Cameron Hanover in Connecticut said that if recently lower wholesale prices hold they could amount to savings of USD 115 billion over a year for drivers.
But recent history showed that even sharply falling pump prices can’t resuscitate US demand during a downturn. Between mid 2008 and mid 2009, oil use dropped by a million barrels a day even as gasoline prices cooled by 30%.
(Sourced from www.thenews.com.pk)
