Until a decade ago, most of the world was a captive customer of oil—consumers would pay any price for gasoline and oil demand was soaring regardless of the surging oil prices.
But recently, many countries around the world have started to show more sensitivity to oil prices—oil demand grows as their economies grow, but oil demand is also more susceptible to oil price swings, with the oil price-consumption correlation behaving more like an everyday product, according to data by Washington-based ClearView Energy Partners and research by Bloomberg Gadfly columnist Liam Denning.
Although it’s at least a decade or more too early to call the end of the world’s oil addiction, the research and data suggest that in a growing number of large oil-consuming economies oil demand now correlates negatively with oil prices. In other words, consumption drops when prices rise and vice versa—a common economic concept applicable to almost every other product on the market.
With oil, this has not always been the case.
ClearView Energy and Denning analyzed data for three 10-year periods ending in 2006, 2011, and 2016, respectively.
During the first 10-year period until 2006, countries comprising four-fifths of oil demand, including the United States, India, China, and Russia, showed a positive correlation between oil demand and their gross domestic product (GDP) and between demand and oil prices. In the decade before the financial crisis in 2007-2008, oil demand soared almost everywhere in the world, despite the fact that oil prices were also rallying. This was the period of Chinese industrialization and construction boom which gobbled up oil at any price. In most of the world, the picture was the same—oil demand rose together with rising economies and with rising oil prices, suggesting that those countries were captive customers of oil.
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