US GDP has never been bigger, but US oil demand this July dropped to July 1995 levels. Stunning!
For the first 7 months of 2012 dropped 2.3%, compared to the same period in 2011. Oil consumption in July 2012 was 18.062 barrels per day--matching July 1995 levels.
Sustained gasoline prices above $3 per gallon are pushing down US oil demand, with gasoline demand in July falling 3.8%, compared to last year. Gasoline demand is back to 1997 levels. Interestingly, total oil demand has fallen more than gasoline consumption, though both have fallen considerably.
The reduction in oil demand is not a function of a smaller economy. In fact, US GDP was 66% higher in 2011 than in 1990. GDP has grown still further in the first two quarters of 2012. Indeed, US GDP has increased every quarter since July 1, 2009 and more than recovered the declines experienced in 2008 through the first half of 2009.
So since a smaller GDP does not explain falling US oil consumption, what does?
The main factors leading to declining US oil consumption are increased efficiency in use of oil, especially rising fuel efficiency of new vehicles, and rising substitutes for oil like biofuels, natural gas, and electricity. All that adds up to the US moving beyond oil. More on this key trend in a coming post.