What is it about 4.6 barrels per year?

Cats are curious
(a friend of mine behind the computer screen)

Since 1982 the number of people in the world has grown by almost 45% or 2 billion people (chart 1).

Oil supply has been unable to outpace population growth since the 1970s and has from 1982 until recently just been able to keep pace with demand (chart 2). What can one person do with 4.6 barrels (193 US gallons) per year? With a vehicle getting 30 miles per gallon one can drive an average of around 16 miles per day.

Why has per capita consumption been so stable since 1982 having grown at an increasing pace for the prior 120 years (chart 2 again)? The answer is that a new method of rationing demand emerged in 1983: benchmark pricing linked to transparent free liquid markets (see chapter 1 of Oil 101). Free markets and necessarily volatile oil price became the adjusting factor matching available supply to demand.

To put the global average of 4.6 barrels of oil consumption per year in perspective, the number of barrels consumed per person in 2008 in India was 0.9, China 2.2, Brazil 4.6, Germany 11.1 and the US 23.3.

Build your own chart of consumption patterns over time by clicking here (click the 'Play' button to start and the individual country to track over time - set X axis to 'Time' and Y axis to 'Oil Barrels Consumed per Person').

OPEC and the Consumer: BFF?

Which one in the consumer?

Today the oil market (NYMEX WTI crude) traded above US$70 per barrel and closed at a high for 2009. If you read this blog you will have been aware of the reasons for this trend since the turn at US$35 per barrel oil. Fundamental oil bulls have been lonely. Total global inventories are falling. OPEC members have removed more oil supplied than demand has fallen.

US$70-US$80 is the sweet spot at which OPEC and the consumer have declared they would both be comfortable for now given the nascent state of economic recovery. OPEC (read: Saudis) know that they can't open the spigot yet. They need to get prices up to US$90 to allow for some slippage. OPEC members know that consumers haven't got the cash to pay the high prices from 2008 and so members are unlikely to allow prices back above US$100 without finding themselves on the receiving end of some serious net consuming country political pressure.

US Inefficiency Standard

Need to start thinking outside the box

The US Administration announced today that by 2016 US vehicle efficiency is to be raised to 39mpg for cars and 30mpg for light trucks/SUVs. These new efficiency levels will keep US motorists at least twenty years behind Europe in terms of automotive efficiency. Today's announcement (my emphasis in red):

"...simply allows the United States to match today’s European fleet efficiency (vehicles on the road now) some time after 2030." (NY Times/Lee Schipper)

US car buyers rather than the government need to create demand for ultra-efficient vehicles. A market solution which pushes efficiency aggressively and operates independent of oil price cycles is the vehicle efficiency market. A vehicle efficiency market is fully compatible with the goal of today's announcement - greater efficiency. However, a vehicle efficiency market uses a carrot rather than a stick.