UPDATE!
Link: Biggest Drop in U.S. Oil Demand in 26 Years | Reuters/Yahoo! News
U.S. oil demand during the first half of 2008 fell by an average 800,000 barrels per day (bpd) compared with the same period a year ago, the biggest volume decline in 26 years, the Energy Information Administration said on Tuesday.
In its latest monthly energy forecast, the EIA said the huge drop in demand was due to slower U.S. economic growth and the impact of high petroleum prices.
The drop in U.S. oil demand helped offset a 1.3-million bpd increase in petroleum consumption in nonindustrial countries during the first half of the year.
As a result, preliminary data shows that global oil consumption rose by 500,000 bpd in the six-month period, the EIA said. ...
... "Total U.S. petroleum and other liquids consumption is projected to shrink by almost 500,000 (bpd) in 2008 based on prospects for a weak economy and continuing high crude oil and product prices extending into 2009," the EIA said.
U.S. daily oil use fell by a slight 7,000 barrels last year and is forecast to decline by 480,000 barrels this year and then by another 120,000 barrels next year.
The EIA is now forecasting that U.S. oil demand in 2009 will average 20.08 million bpd, the lowest level since 2003.
Earthside Comments: Two pieces of analysis here explaining what may be happening with the price for a barrel of oil today.
Link: The Peak Oil Crisis: Masking the Peak | Tom Whipple/Falls Church News-Press
As world oil production has never peaked before, there is no historical basis for making informed judgments as to what is going to happen.
All we know is that some six billion people, living in some 200 economies on this earth are soon going to be confronted with getting by on less than the 86 million barrels of oil per day (b/d) that we currently consume. The outcome of the interaction among all those people, all those countries and all that oil is too complex to foresee with any clarity.
It has long been recognized among those studying the peak oil phenomenon a severe, lengthy, worldwide economic setback could reduce the demand for oil to such an extent that peak production could be lost in the chaos.
Other scenarios involve oil prices rising to such level that demand drops significantly, which would be followed by a major drop in prices, followed by increased demand and rising prices, and the cycle continues.
In the last three weeks, world oil prices have dropped steadily so they are now nearly $30 a barrel below what they were in early July.
Now this decline could be the result of those pesky speculating hedge funds selling short the oil futures contracts. It could be the $4 gasoline keeping an increasing number of Americans off the roads, or even the Olympics, which forced Beijing into a two-month shutdown of a sizable piece of its economic activity in an effort to clean up the air.
Incidentally, China's imports of petroleum products, which grew rapidly in the first half of the year, look like they are going to drop precipitously in August.
If it turns out speculators, $4 gasoline or a lull in Chinese purchases are major factors behind the current weakness in oil prices, then the current declines are likely to reverse in a couple of months.
The speculators will change their positions, the summer discretionary driving season will be over and the Olympics will be in the history books so that China can go back to making its normal amount of air pollution.
If this is indeed what we are witnessing, then oil prices should rebound as the winter heating season approaches. The Organization of Economic Co-operation and Development (OECD) oil stocks are unusually low at the minute, and if the world remains in even middling economic conditions, demand from China should return.
At the minute, the Chinese are facing a serious electric power shortage stemming from a mismatch between the new coal fired generating plants they have built in recent years and their ability to mine and transport coal to these facilities.
Some are talking of a renewed surge of Chinese oil, coal and liquefied natural gas (LNG) imports if Beijing is to keep its factories humming on and continue to grow at the planned 10 percent a year.
However, suppose for a minute the pessimists are right and the world is on the brink of a major economic setback. The evidence for a setback abounds, starting with the credit and housing crises in the U.S. through rising unemployment, inflation and more.
Ditto for the E.U. and much of Asia. If U.S. imports shrink significantly, all sorts of economic ills will follow in the economies of our trading partners. The Chinese, however, still remain adamant that their surging economy will power right through a drop in Western demand for their exports.
Evidence is accumulating, however, that all is not well with China's economy. Exports are no longer growing, petroleum imports are dropping and outside economists are now saying that GDP may only grow by nine percent this year. All of this suggests China's imports of crude and petroleum products may slow markedly before the year is out rather than increase as some are suggesting.
Judging from what happened two years ago, OPEC is likely to cut production again should oil prices slip below $100 a barrel, which in turn would set off on another round of price increases. The course of all this will depend on just how the U.S., China's and the world's economies fare over the next year or so.
If things get really bad, the demand for oil, which will be expensive by historical standards no matter what happens, may drop precipitously. Then both production and prices are likely to fall amidst much volatility and suffering in the poorer countries that are already taking serious economic hits.
Falling demand for oil obviously is going to cut production so that a nominal "peak" in world oil output will occur. From there on, the situation has so many variables as to become unpredictable. Worldwide demand for oil could fall by hundreds of thousands or perhaps millions of barrels per day.
Oil consumption, however, is so deeply rooted in the sinews of the world's economy, it is difficult to image demand dropping by many millions of barrels from the current 86 million b/d. But then again, nobody can realistically foresee what is going to happen.
If worldwide economic problems should stretch out into years, then we would be in the midst of what most foresee will be the geologic/economic decline in world oil production.
If demand has already dropped due to bad economic times, then the geologic peak is likely to go undetected. For in our rearview mirror, world production would have been dropping for months or years simply because fewer have enough money to pay for the stuff.
The message is that there are many ways to perceive the coming years. Either the lack of enough oil due to geologic constraints will create unimaginable economic troubles, or economic troubles from some other cause can kill the demand for oil.
A major blow-up in the Middle East, for example, could create so much turmoil that world oil production would peak on the spot, never again to return to current levels of production.
It is getting very complicated out there, and none of us really know what is going to happen.
The only thing we can be sure of is that somewhere along the line, changes in our lifestyles are coming - perhaps faster than we think.
Link: Crude Oil Price Retreat: Sunrise or a Lull Before the Storm? | James Leigh/Energy Bulletin
Build Up to Present Events Ted Trainer (1997) predicted large and permanent increases in oil prices after the year 2000 due to increasing scarcity. In fact in March 2008, oil broke through the psychological ceiling of $100 a barrel, and later in early June rose to around $140 on the way to $150. Even the president of OPEC (Organization of Petroleum Exporting Countries) has warned of oil reaching $200 a barrel (Robertson, 2008). Goldman Sachs has announced that the $200 barrier could be hit any time within the next two years (Foroohar, 2008). Alexey Miller, head of the world’s largest energy company, the Kremlin-owned gas giant Gazprom, has predicted that oil will reach $250 a barrel “in the foreseeable future” (Fortson, 2008). Ferris-Lay (2008) has forecast that the black liquid gold could climb to an incredible $300 a barrel in the foreseeable future. In the slightly longer term we have been warned of an economically lethal price of $380 (Porter, 2005).
On the heels of such predictions, in the months of July and August 2008, oil has fallen from $147 a barrel (11 July) to $115 (8 August), a large drop over four weeks of 22%. However, since 2003, even in a strong upward trend of oil prices, there have been several dips in the price ranging from 10% to 31% (a Paris, 2008). So the latest retreat of 22% should not be so unexpected.
What it all Means
Notwithstanding, many saw this July/August 2008 price retreat as a continuing stable trend to much lower levels and rejoiced over the permanent relief that much cheaper oil would bring. However, Robert Hirsch and his associates stated that as Peak Oil “is approached, liquid fuel prices and price volatility will increase dramatically” (2005, p. 4). We would be well warned to expect price volatility, with dramatic peaks and troughs, and that even if the oil price significantly retreats at times, this should not lull us into complacency. There have also been several precedents of oil retreating in price over recent decades, only to spring back again into new record price hikes (see graphs in Williams, 2007). The likely overall trend for oil will be aggressive price rises from the underlying causes of low supply and high demand.But what could halt the effects of dwindling oil supplies’ higher prices due to scarcity? World political and geopolitical events, economic growth and decline, have all influenced the price of oil over the decades as shown in the graph below. If significant levels of recession were to grip the world’s largest economies (for example, USA, EU, China and India), then there could be significant alleviation of the effects of dwindling oil supplies, as the demand for oil would significantly drop. This would mean that the world would not feel the problem of a shortage of oil and high prices for a while, but as the economies pick up to grow again, we would be confronted with the same old problem – less oil supplies, increasing demand, and therefore price hikes to even new records.
In the table below, based on the yearly crude price figures, the peaks and troughs of crude oil prices are shown from 1984 to July 2008. We can see from these figures that significantly increased volatility after 1984 appeared in the third millennium, with a massive increase of a 543% price hike from 2002 to July 2008. Even from the vantage point of historical precedents, we could expect the sudden bolt of a downward trend in crude prices in July/August 2008, to be replaced with price hikes again.
Also, as Hirsch suggested above, volatility in prices is anticipated to increase around the time the world reaches peak oil production, and then subsequent declining production, which appears to be around now – hence violent swings both ways, up and down, are not unexpected. However, this price fluctuation will likely occur within a general trend of dwindling oil supplies leading to increasing scarcity and much higher crude prices.
The graph below illustrates the peaks and troughs of oil prices (with their associated world events) in the ups and downs since 1970, however, it is obvious that the strong general trend since around 2000 is a upward which was increasingly steep since around 2006.
Conclusion
A very strong largely sustained upward trend in oil prices is shown since around 2000. This trend, even though occasionally interrupted by a price retreat, due to world events and other circumstances, will likely continue and take oil prices to $200 or even $300 a barrel in the wake of world peak oil production already reached in 2006.
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