Fuel Demand May Exceed Production

NTBKtrader · Intermediate Crude Joined: Oct 19, 2004 Posts: 591

At what prices do you all think we will see demand taking a hit? I would have thought $60 a barrel would have hurt the economy but fuel demand and economic growth is still trucking along?!

Aug. 4 (Bloomberg) -- Crude oil in New York rose for the fifth session in six as below-normal gasoline inventories raise speculation that fuel consumption will outpace refinery production.

Gasoline demand for the four weeks ended July 29 is up 1.1 percent from the same period last year, according to the U.S. Energy Department. Gasoline supplies at 205.2 million barrels are down 2 percent from the five-year average. Refinery disruptions have also helped push prices higher.

``There is concern about late summer gasoline supply,'' said Tom Knight, director of trading for Truman Arnold Cos., a Texarkana, Texas, independent wholesale supplier and storage company. ``We should be concerned about the drop in gasoline inventories given the number of significant refinery problems we've experienced and the demand numbers,'' he said.

http://www.bloomberg.com/apps/news?pid=10000087&sid=aWjfjL4p5cFI&refer=top_world_news

FireJack · Heavy Crude Joined: Mar 16, 2005 Posts: 449

The only reason the economy is still trucking along is that people are going more and more into debt. I get the feeling that this will continue until there are actual shortages. When it becomes obvious that oil production is decreasing the prices will probably skyrocket and all these people in massive debt will be screwed and the world economy will crash. What follows that is anyones guess.

khebab · Moderator Joined: Sep 27, 2004 Posts: 935 Location: Canada

At least $100 a barrel! people will restrict their displacements only if gas becomes a significant part of their budget. For low income pople, it's at least 10% of their budget right now (sorry forgot the source) and for middle class and beyond it's less than 3%!
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linlithgowoil · Posted: Thu Aug 04, 2005 1:20 pm Post subject:

you wont get demand destruction for petrol immediately. people still keep driving, they just pay, and then they notice they have a little bit less at the end of the month for other things.

however, prices havent risen much yet, and petrol is still pretty cheap - even here in the UK where its beyond £4 a gallon - $7+.

oil would need to go well over $100 to have any effect, and even then the price would need to stay there for a good while

emersonbiggins · Posted: Thu Aug 04, 2005 1:31 pm Post subject:

Dan1195 · Heavy Crude Joined: Mar 19, 2005 Posts: 245

probably 50/50 we see shortages this winter. Depends on pre-allocation of crude stocks, demands, whether we see recession, etc. My gut feeling would say no, at least not in the U.S. 48. This of course assumes no natural or geopolitial disruptions occurring.

Lehyina · Heavy Crude Joined: Jan 12, 2005 Posts: 104

I think we will see demand starting to take a noticeable hit once oil prices begin to exceed around $80/bbl. This estimate is based on the spreadsheet model which you can find at: Cost USA Oil Imports & Economic Impact
The model examines the net cost of oil imports to the USA economy relative to GDP. The largest ever decline in oil consumption ocurred during the recession years of the early 1980's just prior to which net oil imports to the USA economy exceeded 3.4% of GDP. To date the cost has only reached 1.5% of GDP but is heading towards 2%. My simple calculations suggest that similar economic conditions to the 1979/80 oil shock will be replicated once oil prices exceed around $80/bbl

Pops

Thanks Lehyina, that's interesting.
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pup55 · Expert Joined: May 26, 2004 Posts: 3586

Impact of $1 fuel price increase on average driver:

10,000 miles per yr
20 miles per gallon
500 gallons
$1 per gallon $500 per year

Impact of 1% interest rate increase on average mortgage holder:

150,000 mortgage at 5% $9,622
150,000 mortage at 6% $10,738
Impact $1,116 per year

I suppose if Mr. Bubblespan would like to offset the impact of the fuel increase by decreasing interest rates, it would take a .5% decrease to make up for the $1 increase in gas prices.

But he seems to be going the other way, which is going to make it a lot worse.

Pops

Of course a $1 increase in gasoline means a corresponding increase in the cost of home energy use – another $500?

Maybe another couple hundred hidden in consumer goods.

Oh, yea, interest on that $10k c.c. statement…
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Permanently_Baffled

So if my fuel bill goes up , I have less to spend on other things right?

But those "other things" need oil to make and transport right?

If I am not buying those "other things" , isn't this part of the oil demand destruction we are talking about?

PB
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Lehyina · Heavy Crude Joined: Jan 12, 2005 Posts: 104

Since 1965 there have only ever been 8 years in which world oil consumption has declined these being:
1974 -1.45%
1975 -1.08%
1980 -3.94%
1981 -3.15%
1982 -2.82%
1983 -0.41%
1985 -0.10%
1993 -0.33%
Th biggest declines were in the 3 years after the 1979/80 oil price shock but was this completely oil price driven? I don't think so. During those years USA interests rates were hiked severely with the average prime rate in 1981 hitting 18.9%. The interest rate hikes brought on recession which is pretty good for snuffing out some oil consumption (eg. a person who loses his job because of recession will not use as much oil especially if he used to drive to work). So I think the same thing will happen this time around. A combination of high prevailing oil prices plus Mr. Bubblespan gradually increasing interest rates will eventually cause some reduced oil consumption. But the fallout will be recession of some degree or other. In this context I find the following paper by Andrew McKillop most enlightening:
Oil Prices, Economic Growth and World Oil Demand