This is a post by Dave Summers (also known as “Heading Out”). It was previously posted at Bit Tooth Energy.
The EIA released their “This Week in Petroleum” report on Wednesday, December 8, with a graph of American demand over the past year plotted by month. I had not seen the data presented that way before, and since you may not have, either, here it is:
Change in overall petroleum demand in the USA. This figure, and all others in this post, are from EIA’s This Week in Petroleum.
US demand has been growing rapidly. According to the EIA:
U.S. year-over-year growth of almost 750,000 to over 900,000 barrels per day in August and September is of an order approaching, or even exceeding, growth levels seen in China.
The increase in demand is spread over two years. Demand bottomed out in May 2009, and has been rising ever since. As the EIA point out, a growth of almost 1 million barrels a day (mbd) over last year is a very significant increase in demand, which just about offsets the similar sized drop in demand back a couple of years ago as the crisis began to develop.
If one notes that the plot ends in September, and then goes to the refinery input plot for this past week, that too is kicking up significantly, though at only about half the earlier gain y-o-y.
Though in the period between these two points the input reverted to close to being the same as last year.
Gasoline demand does not show as high an increase, with most of the increase in production going into distillates.
That steady increase is a little odd, except that it is being used to keep stocks up, given that demand has suddenly dropped off:
At the same time ethanol production has steaily continued to climb to the point where it has now set a new record at 0.939 mbd.
Elsewhere in the world Wood Mackenzie is noting that we appeared to have returned to consumption levels from before the recession. In fact a new record has been reached:
Worldwide oil demand for this year’s third quarter will set a record at 88.3 million b/d, said Wood Mackenzie Ltd., Edinburgh, in its latest analysis. According to the report, provisional data shows that global oil demand for the recent quarter will almost certainly exceed the previous highest quarter—the fourth quarter of 2007—when demand averaged 88 million b/d.
Just 3 years from the onset of the great recession, global oil demand has recovered to the pre-recession peak seen in 2007, the report said.
The IEA is predicting that this new level will be close to the average demand for the whole of 2011 , but it may be that those predictions are already behind the times.
If demand is in fact rising rapidly, then the talk of seeing crude over $100/bbl in the near future is likely to become more true than less. Not that this will cause much concern among the OPEC ministers soon to meet in Ecuador, and certainly it is not going to be a concern if, as Lybia’s minister predicts, oil reaches the $100 figure. Should that occur it might be that quotas get loosened a little, but that is unlikely to occur before the next meeting next June.
All of this might suggest that the projection of $100 oil may be exceeded quite a bit sooner than most people think. There is, after all, only so much oil still stored around the world in tankers.
The International Energy Agency IEA is forecasting world oil demand will set a new record next year when is smashes through 2008 s pre-recession high and warning that the era of cheap oil is over. The figure has been given significance by those that say oil peaked midway through 2008.
There’s somebody’s theory that if cost of oil rises above 4% of GDP the economy will collapse again.
365d x14.5? million/d x $90/$14.8 trillion October 2010= 3.2%?
http://www.forecasts.org/gdp.htm
Will $112.5/b oil be fatal?
http://www.theoildrum.com/files/Oil%20price%20and%20recessions.png
Dave Murphy of The Oil Drum has shown that if the oil price goes much above $80 or $85 in inflation adjusted terms, the economy tends to go into recession.
…..when people spend so much money for oil, (and indirectly for food, and for all things that have a transportation cost component), they don’t have enough left over for everything else. People cut back on non-essentials, and soon the economy goes into recession.
*** I found your theory.
http://peakwatch.typepad.com/.a/6a00d83452403c69e201348821b587970c-pi
http://www.declineoftheempire.com/2010/10/quantitative-easing-oil-prices-and-recessions.html
**** qoutes from article………..
………..Undoubtedly, the surge in oil prices accelerated the deterioration of economic conditions in 2008. However, the financial meltdown in the fall of 2008 and the tailspin that followed was certainly not caused by high oil prices. To understand that, we must look at the collapse of the Housing Bubble and various structural imbalances that existed in the economy for many years (or decades) before that.
……….Back in July of this year, economist James Hamilton took a look at whether an oil price in the $80s was affecting the economy. His analysis was based on a theory put forth by oil analyst Steven Kopits.
Oil expenditures as a percentage of U.S. GDP. Recessions are indicated by shaded areas and dashed line is drawn at 4%. Oil expenditures calculated as average monthly price of West Texas Intermediate (from FRED) times 365 times average daily petroleum product supplied to U.S. markets over the last 12 months (from EIA). Nominal GDP from quarterly BEA Table 1.1.5 interpolated to form a monthly series. Recession dates from NBER.
The above graph is an adaptation of Steve Kopits’ portrayal of the rough monthly value of U.S. crude oil purchases as a percentage of GDP. We came near what Steve suggests is a critical 4% threshold in the spring, but oil price declines since then have brought the share back down a bit.
………….the point is clear: according to Kopits’ interpretation of the historical data, we risk a recession if oil expenditures get near or rise above 4% of nominal GDP, and stay there for some period of time.
A weakening dollar driven by another round of quantitative easing will cause the oil price to rise as I explained above.
You don’t need to be a rocket scientist to see that in a very weak economy, a rising oil price could, after some critical threshold is passed, put us right back in recession. (I am ignoring the controversial assumption that we are not in recession now.)
That’s the one.
Thanks.
Given that we are heading into the winter at $89 and summer driving is ahead–we may get to test his theory again.