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Ron Patterson

Ron Patterson

Ron Patterson is a retired computer engineer. He worked in Saudi Arabia for five years, two years at the Ghazlan Power Plant near Ras Tanura…

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Weak Demand From Major Consumers Puts A Cap On Oil Price Growth

Weak Demand From Major Consumers Puts A Cap On Oil Price Growth

The EIA publishes oil consumption numbers for all major nations. However they have data for most nations only through 2013. They do have data for some nations through 2014. Nevertheless a lot can be gleaned from just looking at those consumption numbers. If oil consumption numbers are growing year after year, then there is a good chance that nation is growing economically. But if oil consumption numbers are continually declining year after year, then it is more than a little silly to say all is well, economically, with that nation. Or that is my opinion anyway.

First, who’s oil consumption is increasing year after year, or who’s economy is booming? All charts below are consumption as total liquids in thousand barrels per day. Some charts are through 2014 while others are through 2013. Whatever the last year is on the yearly axis is the last year for that data.

Important: All charts are consumption, not production.

No doubt the Middle East is booming. The reason, most of them are oil producers and oil, for most of this chart anyway, the price of oil was increasing. They had lots of income, their consumption was increasing every year as was their economies.

Saudi Arabia, by far the Middle East’s largest consumer, has increased consumption every year since 1995.

One third of all total liquids consumption is in Asia and Oceania. The area has experienced tremendous growth in oil consumption.

And Asia and Oceania’s largest consumer is China. China has increased oil consumption 6.5 percent per year since 1985.

Most of the rest of the world has not seen the consumption boom that was experienced by the Middle East and Asia & Oceania. Related: Natural Gas Companies Slammed By Low Prices

This chart dates only from 1992, the first year after the break up of the Soviet Union. Russian consumption declined by almost 2 million barrels per day to 2.5 million barrels per day during the next 6 years. Russian consumption later recovered but is still almost 1 million barrels per day below the FSU breakup point.

The combined consumption of the rest of the former Soviet Union nations declined by over 52 percent over the next 8 years and has not yet recovered.

Most of the rest of the world has seen a serious decline in consumption in the last decade.

Consumption peaked for Europe in 2005 and 2006. The largest drop was in 2009. For Europe we only have data through 2013. Europe’s oil consumption is down 13 percent, 2006 to 2013.

Germany is Europe’s largest economy. Germany’s oil consumption started to drop in 1999 but has leveled out since 2007. Germany’s oil consumption is down 18 percent since 1998.

France’s oil consumption has been dropping since 2006 and really took a dive in 2104. France’s oil consumption is down 17 percent since 2001.

The UK peaked in 1996 then again in 2005. Oil consumption in the UK has dropped by just over 17 percent since 2005. Related:Oil Jobs Lost: 250.000 And Counting, Texas Likely To See Massive Layoffs Soon

Spain’s oil consumption started dropping in 2007 but leveled out in 2014. Spain’s oil consumption is down 25 percent since 2007.

Pity poor Italy. Her oil consumption peaked in 1998 and has dropped 36.4 percent, over one third, since.

US held peak oil consumption at around 20,700,000 barrels per day from 2004 through 2007, dropped in 2008 and 2009 but has leveled out since then. US consumption in 2004 stood at just over 19 million barrels per day, down about 8 percent since the four year peak period. The recession has not hit the US nearly as hard as it has hit Europe.

Mexico has fared better than Europe as well. Their peak consumption was in 2007 at 2,173,000 barrels per day and had declined by 9.5 percent by 2014.

Related: Oil Price Rebound Not Imminent, But Underway

Japan has been in the doldrums for almost two decades. Their oil consumption peaked in 1996 at 5,704,000 barrels per day. They recovered slightly in 2012 but dropped again in 2013 and 2014, reaching a low of 4,297,000 barrels per day in 2014. That is a decline of almost 25 percent.

The EIA has OECD monthly oil consumption data through April 2015. As you can OECD Europe has not improved much, if any at all since 2013.

Total OECD oil consumption may have a slight uptick in the last two years.

And last but not least, China has peaked, or so says the Japanese financial holding company Nomura. This chart is China oil production, past and predicted.

No turning back for China’s oil production

China’s domestic oil production likely peaked this year and is about to enter a long-term structural decline, according to Nomura. It notes the experience from Alaska’s Prudhoe Bay, which peaked in 1988: “Once the steep stage of the terminal decline output phase begins, there is generally no turning back.” The takeaway is that China could be a buyer on global energy markets next year, importing bigger volumes as it seeks to offset waning domestic production. Nomura says demand from China should help offset new supply from Iran, with prices stabilizing at an average US$55 per barrel next year.

Conclusion

The recent decline in oil prices had at least as much to do with falling consumption as it did rising production. We don’t yet have consumption numbers for 2015 yet but from the build in inventories it does not look like that consumption has improved significantly.

With China’s economic growth slowing it looks like world oil consumption will get worse before it gets better. This is one reason I expect oil prices to stay low for quite a while longer.

By Ron Patterson

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  • Peter on November 25 2015 said:
    This misinformed and speculative article doesn't even discuss growing oil consumption of third largest oil consumer in world and the only country contributing significantly to growing oil demand currently and future.- India. Guess the information in this article is a complete waste of time.

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