Low Demand Will Depress Oil Prices

Low Demand Will Depress Oil Prices
By Patrick McVeigh
December 10, 2013

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Amidst the clamor of fossil fuel divestment and the prospects for alternative energy, investors would do well to examine the underlying cause for oil’s pricing in recent years. High-quality crude oil has hovered around $100/barrel, sparking a discussion of whether waning global supply will eventually push prices to challenge the historic $140/barrel mark of 2008.

The reality, however, is that the U.S. – and indeed, the world as a whole – is approaching the threshold of peak oil demand, rather than peak supply. Prices will fall in the coming years, regardless of fluctuations in supply.

I’ve noted this peak before, based on the parallels between the seemingly untethered prices in 2008 and the high prices of 30 years ago, which reflected a similar global reduction in demand of stunning proportions.

Looking back at 1979 provides historical guidance for how the world economy may react to this current period of high energy prices. Staggering under an energy shock throughout the 1970s, the global economy entered a period of stagflation. The resulting decline in oil consumption reached amazing levels:

  • The world’s consumption of oil peaked in 1979 and did not surpass that level until 10 years later, in 1989.
  • U.S. consumption did not surpass the 1979 level until 18 years later, in 1997.
  • Canadian consumption did not surpass the 1979 level until 20 years later, in 1999.
  • European consumption still remains 5% below the 1979 level.
  • Germany’s consumption still remains 26% below that level.
  • France’s consumption still remains 21% below that level.

Bringing the debate to modern times, high oil prices in the last five years have had the same impact on the economy that they did in the late 1970s. Many people still argue that our demand for energy never goes down, but it does, in fact, respond fairly predictably to changing prices.

Benchmark Crude Oil Prices

Benchmark Crude Oil Prices

Go to page 23Next

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)

About the Author

Advisor Perspectives
The Advisory Profession’s Best Web Sites by Bob Veres His firm has created more than 2,000 websites for financial advisors. Bart Wisniowski, founder and CEO of Advisor Websites, has the best seat in the house to watch the rapidly evolving state-of-the-art in website design and feature sets in this age of social media, video blogs and smartphones. In a recent interview, Wisniowski not only talked about the latest developments and trends that he’s seeing; he also identified some of the advisory profession’s most interesting and creative websites.

1 Comment on "Low Demand Will Depress Oil Prices"

  1. The article left out a small detail regarding supply.

    The same EIA data that is referenced also shows that in 2016 US oil production growth will effectively end, enter into a short plateau, and then begin long-term decline starting in 2019.


    It’s just a minor detail, so I can understand why it got left out.

Leave a comment

Your email address will not be published.