What’s the Explanation for Declining Oil Consumption?

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I have posted many charts by reader Tim Wallace that highlight declining oil consumption in the US.

James Beck, Lead Analyst, Weekly Petroleum Supply Team for the Energy Information Administration has also chimed in on the subject.

For example, please see my September 16, 2012 article Email From Lead Analyst, Weekly Petroleum Supply Team on Possibility of Recession.

Some readers have suggested improved gasoline mileage in cars is the primary reason.

However, that explanation is faulty (as Wallace and I have pointed out on numerous occasions) because mileage rates have steadily climbed over the years while the plunge in oil consumption happened abruptly at the start of the recession and never recovered.

OK, So Why the Drop?

Gail Tverberg on the "Our Finite World" blog explains in her excellent post Why is US Oil Consumption Lower? Better Gasoline Mileage?

Gail analyzes gas prices, miles driven, increased fuel mileage, and a decrease in industrialization. She concludes ...

Summary of Where Oil Savings Comes From

As stated at the beginning of the post, United States oil consumption is about 4.7 million barrels a day lower in 2012 than would have been expected based on pre-2005 patterns. The way that this savings breaks out by product grouping is as follows:

breakdown of savings in us oil consumption

Decreased gasoline usage due to improved gasoline mileage amounts to 7% of the total, decreased gasoline usage because of fewer miles traveled amounts to 25% of the total, and a decrease in distillate use amounts to 17% of the savings. The majority of the decrease, 51%, comes from a decrease in the “All Other” category, which is most closely related to a decrease in industrialization.

Going forward, fuel efficiency changes are likely to play a larger role in fuel savings, because CAFE (Corporate Average Fuel Efficiency) Standards have been unchanged for about 20 years. For model years 2012 to 2016, they are again increasing, so auto makers are again making more of an effort to improve mileage.

Actual fuel efficiency gains in the next several years for the US fleet of cars will depend partly on the mileage improvements incorporated by manufacturers, and partly on how many of these more efficient (but also more expensive) cars are purchased.

I have recently forecast that we will be entering another very-long recession in 2013. The recently announced decline in US GDP in the fourth quarter of 2012 is another indication in this direction.

Recession Track

We certainly agree regarding the recession track, but our overall analysis is quite similar as well.

We do have the timing a bit different. Gail states the "drop in consumption is no doubt related to a rise in oil prices starting about 2004."

The price of oil is likely a factor, but I do not show a dip there.

Gasoline Usage in Summer Months

gasoline usage by summer month

The above chart is one of many by reader Tim Wallace from my September 11, 2012 article Petroleum And Gasoline Usage Charts for June, July, August; Unemployment vs. Gasoline Usage.

Attitudes and Jobs

Are gasoline prices a huge factor now? You bet!

Prices are high, unemployment is high, and younger kids have completely different attitudes towards cars, transportation, and debt.

Robots and Looking Ahead

I gave Gail a call asking about the use of robots. We are in agreement on that score as well.

Some manufacturing is in the process of returning to the US. In isolation, that is an improvement in demand.

However, if manufacturing returns but the jobs don't (and thanks to robots that is the current state of affairs), then the net effect (for as long as that setup lasts) is for a decrease in oil consumption.

For more on robots (with obvious implications on gasoline consumption) please see ...

  1. January 22, 2013: Meet "Baxter" the Robot Out to Get Your Minimum-Wage, No Benefits, Part-Time Job
  2. February 04, 2013: Robot Wars in China; Burger Flipping Robots Serve 360 Gourmet Burgers an Hour
  3. December 08, 2012: Mine-Sniffing Dolphins Lose Their Jobs to Robots; Sea Lion Jobs Safe for Now
  4. Monday, August 20, 2012: Robots to Rule the World? Taking All Jobs? Replace Women?
  5. Tuesday, August 21, 2012: Part II - Robots to Rule the World? Taking All Jobs? Replace Women?

If you think the return of manufacturing to the US means a guaranteed increase in US demand for oil, please read some of the above links and rethink your position.

Source: Global Economic Analysis

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