Saturday Quiz: Demand Destruction of Gasoline in the U.S.
(July 12, 2008)
We hear a lot about "demand destruction" in gasoline useage in the U.S. OK, so how much has gasoline demand actually dropped recently?
Answer: Gasoline consumption dropped 3.3% from last year to 9.347 million barrels a day, according to weekly data released by the federal Energy Information Administration. For the first week of July, that is the least drivers have used since 2003, when consumption was 9.05 million barrels a day.
So gasoline demand is still 342,000/day higher than it was a mere 5 years ago, and all we hear about is "demand destruction"? The phrase "a drop in the bucket" comes to mind....
The U.S. bill for crude oil imports in May increased, elevated by a record oil price. It totaled $31.25 billion, up from $29.34 billion in April. The average price per barrel surged by a record $9.47 to an all-time high of $106.28 from $96.81. Crude import volume, however, decreased to 294.00 million barrels from 303.05 million, a sign soaring prices might be undercutting demand for oil within the sluggish U.S. economy.Gas Pains: Falling U.S. Demand Doesn’t Make a Difference.
However, declining gasoline consumption in the U.S. has done little to deflate gasoline prices at the pump so far. The problem is that demand for other fuels, namely diesel, continues to be strong. This is helping to keep oil prices high.When gasoline consumption drops 2-3 million barrels a day, then that will qualify as "demand destruction." merely cutting back to consumption of a few years ago qualifies as the proverbial "drop in the bucket."
Bonus question: U.S. demand dropped about 300,000 barrels a day. What percentage is this of global demand (85 million barrels/day)?
Answer: .0035. Does anyone really think shaving 300,000 barrels a day from 85 million barrels/day is going to deeply, truly and enduringly affect price? If demand in the U.S. drops 5 million BPD from 21 million BPD to 16 million BPD, even that unprecedented, stupendous decline represents a mere 5.9% of global demand.
Run the numbers, and then take all the stories about "demand destruction" with a large grain of salt.
NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Arthur V. ($50), for your outrageouslly generous contribution to this
I am greatly honored by your support and readership.
For more on this subject and a wide array of other topics, please visit my weblog.
All content, HTML coding, format design, design elements and images copyright © 2008 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.
I would be honored if you linked this wEssay to your site, or printed a copy for your own use.
|consulting||blog fiction/novels articles my hidden history books/films what's for dinner||home email me|