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Has U.S. Demand for Oil Peaked?

Samuel Staley
April 13, 2009, 10:29am

An excellent article in the Wall Street Journal today examines trends in the U.S. demand for oil. Many analysts, including those at Exxon Mobile, believe demand has peaked. Even if prices remain low, and the economy rebounds, few believe demand will reach pre-2007 levels.

Among those who say U.S. consumption of gasoline has peaked are executives at the world's biggest publicly traded oil company, Exxon Mobil Corp., as well as many private analysts and government energy forecasters.

The reasons include changes in the way Americans live and the transportation they choose, along with a growing emphasis on alternative fuels. The result could be profound transformations not only for the companies that refine gasoline from crude oil but also for state and federal budgets and for consumers. Much of contemporary America, from the design of its cities to its tax code and its foreign policy, is predicated on a growing thirst for gasoline.

We are commuting less (despite so-called sprawl), driving smaller cars, and using more public transit. So, demand for oil has moderated.

Demand for all petroleum-based transportation fuels -- gasoline, diesel and jet fuel -- fell 7.1% last year, according to the EIA. This is the steepest one-year decline since at least 1950, as far back as the federal government has reliable data.

Many industry observers have become convinced the drop in consumption won't reverse even when economic growth resumes. In December, the EIA said gasoline consumption by U.S. drivers had peaked, in part because of growing consumer interest in fuel efficiency.

Exxon believes U.S. fuel demand to keep cars, SUVs and pickups moving will shrink 22% between now and 2030. "We are probably at or very near a peak in terms of light-duty gasoline demand," says Scott Nauman, Exxon's head of energy forecasting.

Of course, many people probably don't believe today's currently low prices will stay there. Once the economy takes off here and abroad, demand for oil (and gasoline) in China, Brazil, Eastern Europe, and elswhere will take off again. We may well be looking at $4 per gallon gas again.

Falling demand for oil, however, should not be confused with falling demand for mobility. Wealthy people want to travel more, as Adrian Moore and I discuss in chapter 3 of our book Mobility First. I also discuss this in the context of public transit here.

We will want more mobility, but will opt for non-oil based ways to propel us.


Samuel Staley is Research Fellow


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