The economic headlines from around the world paint a bleak, if not depressing, picture. China slows; Europe slides deeper into recession; the US economy struggles to maintain 2% GDP growth. The tenor of economic news would lead many to think that global oil demand is stalled or possibly falling.
Falling oil prices from April to June add to the impression that the world oil markets are becoming safe for consumers. That, however, would be a dangerously wrong conclusion to reach.
Despite economic trouble around the world, global oil demand remains strong and growing. And growing demand creates upward pressure on price.
According to data from the International Energy Agency, oil demand grew by 700,000 barrels per day in 2011; will rise by 800,000 BPD in 2012; and go up 1 million BPD in 2013 to reach 90.9 million BPD.
While the oil demand growth rate is a modest approximately 1% per year, the upward trend is real and cumulatively even repeated 1% growth makes a difference over a decade. And if global economic growth quickens, world oil demand will quicken too.
Indeed, for the first time ever, the IEA believes that oil demand will be greater in the developing world than in the developed countries. Economic growth remains higher in the developing world, where the thirst for oil is the principal driver for total global increases in oil demand.
The continued growth in global oil demand, in the face of slow global growth, is a clear warning to US policymakers that transitioning from oil to natural gas, biofuels, and boosting efficiency are imperatives to US economic health. Even in the best of times, the US economy is weakened whenever oil prices hit $125 per barrel, and the consequences of high global oil prices are even more dire in difficult times like today. Yet persistent global oil demand growth even now almost guarantees that oil prices will be near or in the danger zone for the US economy.
So how is the US doing in transitioning from oil? Progress is being made but too slowly. The good news is that oil imports are declining, dropping from 60% in 2005 to 42% in 2011. Oil consumption has dropped to 1999 levels, as a result of growing use of oil substitutes like ethanol, biodiesel, natural gas, and electricity as well as increasing fuel efficiency of vehicles.
The bad news is that oil remains the top fuel for the American economy, supplying more energy than natural gas, coal, nuclear or all forms of renewable energy, and high oil prices still brake the American economy.