Data Point: Oil Demand
Niranjan Rajadhyaksha -
Thursday, August 14, 2008 5:28 PM
Higher prices mean lower demand: that's elementary economics.
And rising oil prices should cut demand for petroleum products. But have they?
No.
Why? This is what the US Energy Information Administration says in its new Short-Term Energy Outlook (the pdf is here).
"Over the next year and a half, lower OECD consumption is expected to be more than offset by continued non-OECD consumption growth, led by China, the Middle East, Latin America, and India. Further consumption declines in the OECD nations, coupled with the move to reduce subsidies in large parts of the developing world, should limit future world consumption growth."
The US is clearly consuming less oil (Hat tip: Econbrowser)
But look at the global numbers as well.
The fact that the OECD countries are flirting with recession is one obvious reason why demand will drop there. But surely the fact that consumers in Europe and the US are paying market prices for fuel while consumers in our part of the world get subsidies also matters.
There is no incentive for us right now to cut our dependence on oil. Look at what's been happening to diesel sales in India.
"India's diesel demand is growing at an unexpectedly high rate of 23-24 percent, the oil minister said on Wednesday, causing shortages in some regions.In the April-June quarter diesel sales by oil firms rose sharply, registering annual growth of nearly 18 percent, largely due to use of diesel for power generation."
That's from a Reuters report.
Moral of the story: subsidies are not a good way to protect energy security.