Thinking about this and the fact that I still see Wally-World parking lots full all the time, sooner or later the use of Oil in America should be heading back up. Spring is coming, Lawns will need mowing, More planting will be going in, Just the general movement of Springtime.

Then again, 2 weeks ago I know of 2 cars that bit the dust and got totalled. No one was hurt Thank God, but yet at least one of the vehicles will not be replaced in the foreseeable future. One down 30 million to go.

Yet we are still heaving Jobs out the window and more and more people will be driving less for a while, unless they drive more while hunting for the next job. All in all I'd think the driving miles would go down a bit even if they are still job hunting, saving money for the house and food would be top issues.

Charles

Thanks for the data. I'll head off the quibble that I know is coming: "usage" might be a more appropriate word than "demand", since demand is generally thought of a function of price. The fact that usage is down so much, even with prices down too, is actually even more remarkable than what is indicated by the charts. It suggests to me that the state of the economy has much more impact on usage that does the price.

One can imagine that if the economy shows signs of a comeback, prices will make a comeback in a major way.

Do you think it is possible that the US will never annually use more petroleum again than in 2006 and 2007? I think that it is quite possible.

Very interesting post, I appreciate all the work you do on this site.

My take is that in Q2&308, when there were arguments that the economy was still expanding a little but oil price went far above normal, people drove and flew less, even to the point that consumption in aug/sep was less than what was/is normal for winter months. IMO it was the shock of high prices, and not recession, that pushed down gasoline demand.
The recession is much more clearly with us now but oil price is under a year ago, accordingly gasoline consumption is back on track with what is normal. Assuming oil stays under 80/b or so then IMO gasoline demand will continue in line with traditional usage, e.g. 2007. However, vacationers and business people alike will cut travel expenditures, meaning that jetfuel will continue sharply down.

Most of the cutback in gasoline demand has been the US, which e.g. saw a much higher proportional increase in price than europe on account of our low taxes. Growth continues in some parts of the world, china (maybe), and the persian gulf. Tata is about to begin sales of the nano* car for $2500. IMO we will not see shrinking demand and low price regardless of the recession. As WT says, price and demand declined in only one GD year, 1930, both rising briskly thereafter... and there was no hint of PO in those days. IMO the down year was 2008.

Also note that Henry Groppe thinks price will double this year.

Regarding refiners, their crack spreads have been vanishingly small, almost no profit at all. It makes sense to produce less until prices rise sufficiently to justify running their expensive facilities.

* http://wheels.blogs.nytimes.com/2008/01/10/tata-nano-the-worlds-cheapest...

Some longer term perspective on crude oil inventories on Days of Supply basis:

Crude inventories are definitely high relative to recent years, but that is the context of an industry decision to apparently move to more of a Just In Time system. Year over year, assuming a MOL of about 270 mb, we have gone from about 72 hours of supply in excess of MOL to about 144 hours of supply in excess of MOL.

Gail, how does it look if you add in gasoline imports? Murray

Oil was up 6% today. As supply is cut by OPEC and declines start for Non-OPEC, the price will escalate back up to $100 within a few months.

Whats important is that it looks like a fairly sharp economic slowdown has resulted in a demand decrease on the order of 1-2 mbpd. This can and will vary but also we are seeing sings at least the demand is no longer decreasing and may already be slightly rising.

The US uses 25% of the worlds oil so and initial rough estimate is worldwide demand down by 4-8mbd. I'd suggest that the US has the most discretionary oil use ( we are the most wasteful ) So a more refined estimate is probably towards the low side i.e 4-6 mbd.

Underlying this demand decline you have intrinsic growth in demand from our ever expanding population. Lets guess worldwide we see a 1% natural increase in demand from demographic changes. This is roughly 1mbd of intrinsic demand increase thats resistant to decline this is relentless and shifts the overcapacity downwards i.e 3-5mbd.

Given the economic pullback I think its reasonable to expect that real production capacity will come of its current plateau and begin to decline Non-OPEC production has been in decline since 2004.
I'd argue a real decline of 1-2 mbd is reasonable.

Lets go with the low figure this again shifts the spare capacity downwards to 2-4mbpd.

Finally export land may slow but its not going away a lot of the population increases are in oil exporting countries with subsidies.
I don't have WT estimates handy but we can guess that regardless of economic slowdown we will see at least a 0.1-1mbd change in available exports this pulls the range down using the low end estimate again.
Now its sitting at 1.5mbd-3.5 mbd.

Finally last but not lease OPEC itself is cutting back its reasonable to assume that they will achieve a real 2mbd cutback.

This puts spare capacity at -0.5-1.5mbd

Finally we could assume that given this range and the error in the estimates at this point control of oil prices is probably doable by OPEC
They might have to do some additional cutting beyond the current cuts but if demand remains close to its current levels then OPEC should be able to put a floor under oil prices with even the slightest discipline.

As Non-OPEC continues to decline and export land marches on any spare production capacity is completely under OPEC's control in particular if production declines even a bit more then projected here Saudi Arabia alone should soon be able to manipulate oil prices at will since effectively all the spare production capacity whatever it is would be under Saudi Arabia's control.

Thus for now at least it looks like Saudi Arabia alone can finally play the role they have claimed forever which is to be a true swing producer.

Finally depending on how production capacity trends over this year we could easily see this spare capacity dwindle. Sometime in 2010-2012 the world would have no spare capacity with demand within say 1-2% of its current levels.

Looking at US storage levels etc and guessing whats happening it looks like the world overall had excess production of oil of about 1mbd for about sixty days or about 60 million barrels of excess production is floating around our globe maybe as high as 100 million barrels. If OPEC can cut production by 2mbd for 60 days then we should see this spare oil drawn down in about 60 days. This is a very hazy figure but it gives you at least a ballpark figure for when OPEC could conceivably control prices.

Rising prices attributed to OPEC cuts that could disappear at anytime will not spur new investment in production.

Back on the demand side consider a Mortgage Broker making 200k a year selling subprime Mortgages his office is five miles from his house. Assume now he has lost the house has and apt and works at a McDonalds 10 miles from his apt. In this case the oil used by this person has increased significantly despite a massive reduction in his contribution to the GDP. Lets say his GDP contribution has dropped at least ten fold while oil consumption doubled.

The point is after the obvious pullback in spending esp in areas where the economy bubbled i.e housing the relationship between oil usage and GDP is complex and full of numerous counter examples depending on very specific conditions some peoples oil usage goes up some down. Thus the net result is that oil usage becomes somewhat decoupled and in another post it was pointed out that people burn cheap oil to get expensive money. Basically anyone capable of trading energy for money will make the trade. Only if oil becomes expensive again does it make sense that pressure to conserve will exist.

Bottom line is I see no reason that OPEC cannot take control of oil prices and pretty much set them at what ever level they wish. All they need is a small amount of discipline. Next this need for all of OPEC to participate in production cuts is weak and may not even exist right now.
Saudi Arabia may already be able to control production via cuts they are capable of making i.e 1-2mbd. Within 1-2 years they may not need OPEC to cut to control prices. And shortly after that they may well lose the ability to increase production to keep prices in check.

And last but not least outside of a confirmed overproduction of 1-2mbpd for at least sixty days we really don't have a clue where we are at. I think the rate at which US spare oil storage declines will be very telling. If it declines rapidly then this sort of implies that production has fallen off fast beyond OPEC cuts. If the OPEC cuts result in a very slow decline and prices remaining about at this level through the year then it implies we are on the high side and spare production outside OPEC exists or that OPEC itself would have to make deeper cuts then they probably can pull off to restore prices. Regardless I think we will glean a lot of information from how these spare barrels are finally cleared from the market.

Why is it that in these graphs, the end of each year does not line up with the start of the next year?

Hi Gail

There seems to be a discrpency between numbers depending on source. If you look at the following EIA link;

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_pe...

Total product supplied is quoted as running at 19,723 for 2/20/09, down from 19,889 for a year earlier. that's a drop of only 0.8% and nowhere near the almost 2mbpd drop shown in your figures.

Am I missing something that is different in the way the two datasets are calculated or presented? Just that one is signalling significant demand destruction and the other is saying nothing to see, move along!

Thx
TW

Oil in the Middle East - Wars, US policy.
Prediction - All Troops out of Middle East when the oil runs out!

No one (outside the Pentagon) has really considered the full impact on oil production of a War in the Middle East. Obama may be waking up to that fact now. First he said all troops would be out of Iraq in 3 months, then 6 months, then 12 months, then "combat troops", now it is 19 months combat troops, and leave 50,000 troops until Dec. 31, 2011. So, the main promise he made is alreay over because when he made that promise, he did not have all the facts. Looks like Bush was right this time. You can't listen to people like Sheehan saying pull the troops out now! We would all love to pull the troops out, but until we get off of oil, it is just not possible - a fact that Bush, Cheney and others were fully aware of.....however they did nothing to get us off of oil!

Russia is working closely with Iran on Nukes. Israel and Pakistan already have them.
Either Russia or the US will one day own the Middle East. Who can out last the other?
If Russia and Iran take the Middle East, then the US and Israel are toast.

Self Imposed - Oil Import Restrictions

Has anyone done any research to see if we could restrict our oil imports?
This would force people to stop living off of oil in the US.
It could be planned and published with targets of 10% import reduction per year.
Then we could be at a better place in 10 years.
Under the current plan, we just wait around and watch what happens.

Regarding oil and price, there are three basic scenarios possible right now that I can envision.

1. Demand for oil drops as fast or faster than supply keeping price relatively low or falling even further.
2. Demand for oil increases while supply continues to decline or stay flat, resulting in higher prices.
3. Potential demand for oil drops more slowly than actual supply drops resulting in higher prices.

I do not see any sort of "growth" scenario as likely in the near future. Personally, for the immediate future, scenario #1 seems the most likely. But given that we do not really know what global decline rates are and that we cannot predict interruptions to global supply (war in the Middle East anyone?), the other two scenarios are possible, just not as likely as the first one in my estimation.