As oil prices decrease, I might see my self commuting little bit more often. 10% more often at the most. But the majority of my oil-based energy consumption requires that I get to essential places, so I’m not particularly price-sensitive.
Can someone help me understand where the reduction in oil demand is coming from? Because it’s sure not coming from myself or my friends.
One contribution: Natural gas is now cheap and available, so it’s attractive to switch from oil to gas heat. I know a number of people who’ve done so.
China, basically. You and your friends, and for that matter individual pleasure-driving consumers, don’t really drive the price as much as commercial and industrial users.
In my area, quite a few people are installing heat pumps for their houses instead of burning oil for heat.
Evidently US production is up as well in sort of a friendlier manner of war against the Middle East
Despite the whining, the car fuel mileage efficiency standards are working. Slowly but surely we’re getting more average mpg out of the whole US fleet.
This is the correct answer. There has been a reduction in demand growth mostly from Asia with China being a large part of that. Several other contributing factors, but this is the biggest change.
I don’t know if demand is dropping so much as the supply is rising. I have read that Saudi Arabia has increased production in part to counter American and Canadian production increases due to fracking and oil shale. Trying to make those production processes no longer cost-effective.
It’s pretty political. The fact that a low oil price is making the Russian economy tank is no coincidence.
Here is a report on gas sales in California (small pdf) which shows that absolute sales are declining - not per capita sales. The very large number of hybrids and more fuel efficient cars on our roads is having an impact. I don’t think electric vehicles, though no longer rare, are having much of an impact yet but the Prius is the top or close to the top seller, and so is.
I don’t know about other states.
Demand is slowing in China and the Euro zone and is forecast to slow further. Normally you expect oil exporters to cut production in response, but OPEC has explicitly said they’ll maintain production levels (for now)
Why? Well, the simplest explanation for maintaining current supply levels is that OPEC thinks the demand slowdown won’t be as bad as forecast. Beyond that, take your pick of conspiracy theories… OPEC is colluding with Western powers to starve Russia, Iran, and ISIS of oil revenue, OPEC is making their product cheaper to diminish the clamor for tight oil (American gas shale, XL pipeline).
All the conspiracy theories make sense, but we have no proof of them. Really the simplest explanation is that OPEC thinks demand is going to pick up sooner than everyone thinks.
Doesn’t matter. Oil is a fungible commodity. Every time an American driver switches to a gas-sipper, this lowers demand just enough for a Chinese to buy their first gas-guzzler. Increases in efficiency lead to increases in consumption.
It’s interesting though that chinese demand has not decreased, it’s still growing, just at a slower rate.
But this can still make prices fall because it discourages oil speculation.
Right?
This appears to be the case, both about China and speculation. Heres a link to Chinese monthly crude oil imports upto September. I have read mixed reports of the months of October and November. One report says October imports were lower but November was once again higher. Another report said October and November imports were both higher. Whichever it is it does look as if demand remains high in China, though perhaps not increasing as much as was expected previously.
http://marketrealist.com/2014/11/chinas-crude-oil-imports-touch-record-highs-supporting-tankers/
I did also find this. It’s a piece from August predicting oil price falls. I dont know if such views were widespread at the time. I do know that oil price had fallen in the months before August.
Yep. +1 brilliance. I figured this out a few years back when I wondered “what happens if every liberal Californian gets a zero emissions car?” (and, implicitly, first gets educated in a valuable skill so they can afford one)
If that happened, gas prices would plummet, and all those redneck Texans would take this as a sign from God to buy more trucks.
I’m stereotyping, but Jevon’s paradox does apply.
It probably is just a coincidence. The US & Europe don’t really have much say on where oil prices go.
My understanding is that current low prices are mainly the work of Saudi Arabia flooding the market with cheap oil, in the hope of driving US & Canadian oil operations out of business, as Fleetwood said upthread.
Increases in efficiency may lead to increases in consumption. A self-whipping buggy-whip is still going to sell diddly-squat in today’s market.
Without the ability to predict the future, the result of more, cheaper oil with lessening competition from the vehicle market could spur some other uses, but it could also simply receed to become a legacy staple, like whale oil. Investing is just non-zero sum gambling.
I recall on a visit to China that a large number of Chinese who ride scooters were using electric scooters. They would lock up the thing at street level and take the battery in for the night to charge. With tens of millions of people in various urban settings where scooters are their affordable means of transportation, this has to have a decent impact. Modern battery tech has probably gone a long way to making this feasible too.
It’s not so much reduced demand. The real answer, though, is that Canada’s tar sands (the oil industry would prefer the less ecologically alarming “oil sands” - they’re tar) and USA fracking have added greatly to the world supply. Thanks to fracking, the USA is apparently once again the world’s largest producer of oil. (But IIRC still a net importer, just not as much).
Why would Saudi Arabia reduce production? It’s a trade-off. The idea is to reduce production and keep the price high; but the non-OPEC sources will likely fill in the void, so even if the Saudis cut production, others will just move in and sell more. The Saudis have an extravagant economy highly dependent on oil revenue, already going into the red. Cutting production makes the problem worse. Their attitude now is why should they take the pain so others don’t suffer? besides, even inside OPEC, typically when the Saudis cut production, everyone else cheats and sells more than their quota.
Since Saudi oil is already developed, pumping it out of the ground is close to pure profit. Other producers need to spend a lot more to steam or frack their oil out, or drill in deep seas, Siberia, and other inaccessible places. Saudi Arabia is hoping by letting the price drop, these producers will close shop or at least stop investing in more production.
The fact that it conveniently punishes Russia, who gets much of its foreign revenue from gas and oil, is a bonus. USA is happy, they want to teach Russia a lesson over the Ukraine. Saudis are happy, they want to teach Russia a lesson over its support for Assad in Syria. Iran is another Saudi antagonist who needs oil revenue more desperately than the Saudis, still more bonus. Low oil prices screw over Venezuela, an antagonist of the USA. More friendly countries - like China, Japan, the EU group, etc. - benefit from low oil prices. Life can’t get any better.
Falling oil prices reduce the economic viability of shale oil, so that cannot be it. Most of the increase in prices over the last decade has been due to the new demand from the Far East, which has now slowed down.
OTH, Africa is booming, demand has actually gone up. Falling oil prices helps them, more Africans (and S Asians) can start buying cars and and once the infrastructure is set, then oil prices can rise.
The trouble is, having developed the production in the US Midwest, it is more cost-effective to produce at a loss than to shut down, as a lot of the cost is capital expense to develop the production, rather than operating expenses (although those are high too). As long as the price beats operating costs, it’s paying down some of the original capital investment loan. Loan payments don’t go away because production shuts down (barring bankruptcy).
But what they can do is reduce production or force bankruptcy for the most expensive fracking, plus definitely delay much of the planned additional production development.; similarly reduce development of deep-sea oil reserves, remote arctic sources, etc. Since a lot of these projects have multi-year lead times, this strategy would mean that oil production will start to go down shortly but new production will not be developed for a much longer time. Prices should be higher - for a while - in a few years.