Tuesday, September 23, 2014

What is Driving US Oil Demand?

A few years ago it became popular to say that US oil demand had peaked and would never recover. However, the US DOT just released traffic statistics for July 2014. It shows miles driven on all US roads increased by 1.5% in July 2014 as compared with July 2013 (see chart below). If this trend holds, we will see new highs for US miles driven within a couple of years.

Although miles driven has begun to increase, this does not directly translate into an increase in US oil demand. Since the rally in oil prices in 2005, the increase in miles driven as a potential source of additional oil demand has been offset by efficiency gains occurring in the US vehicle fleet (see charts below).

Vehicle efficiency has been led by the deployment of ten technologies (listed in order in which they have become widespread): fuel injection, transmission lockup/torque converters, multi-valve engines (cylinders with more than 2 valves), variable valve timing, hybrids/regenerative braking, continuously variable transmissions, gasoline direct injection, turbocharging of small bore engines, variable displacement/deactivating cylinders, and start-stop systems.

The most recent wave of efficiency mechanisms are now, in late 2014, beginning to be overwhelmed by the increase in miles driven such that US oil demand is beginning to increase year on year. Within a few years US oil demand should make new record highs (the highest historical annual US oil consumption year was 2005).
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