U.S. Oil Demand Hit Lowest Point in Decade

A silver lining from a climate perspective.

U.S. oil demand in December was revised down by 4.0 percent from an early estimate to a final number of 19.199 million barrels per day, bringing consumption for the year to its lowest level since 1998, the Energy Information Administration said Friday.

U.S. oil demand in December was 794,000 bpd lower than the previous estimate of 19.993 million bpd and down 1.520 million bpd, or 7.3 percent, from oil demand of 20.719 million bpd a year earlier, the agency said.

U.S. oil demand for 2008 was down 6.1 percent, or 1.261 million bpd lower, to 19.419 million bpd, compared with 2007, the lowest yearly demand level since 1998, the EIA said.

Oil in turn has dropped in price to under $45 per barrel. But this is a very mixed blessing as transportation sector renewables are now more challenged to compete. And there are further ramifications.

Currently world oil consumption is only down by a few million b/d from the all-time high levels of 2007-8. If this level of consumption holds, then the current OPEC production cuts of 3-4 million b/d seem to be on track to reduce stockpiles and force prices higher. The other side of the coin, however, is that the global economic situation is deteriorating far faster than most expected. It is possible that world oil consumption could quickly fall from a high of 86 million b/d in 2007 to 80 or even 70 million b/d simply because consumers can no longer afford and industries no longer need oil products in such volume.

In this situation, a new set of forces would come into play. While OPEC seems to be able to cut oil production by 3 or 4 million b/d, deliberately cutting production by 10 or 15 million b/d seems out of the question. The economies of the exporting nations that are already in financial trouble would simply collapse if oil exports were reduced by 50 percent. The consequences would be political turmoil and likely changes of government. The over-supply of oil would force prices lower. Analysts are already predicting that if oil goes to $20 a barrel there will be widespread reductions in oil production around the world as many fields can no longer produce oil this cheaply.