The world may lose its taste for oil long before oil itself runs out, if the trend in the West becomes global.
Demand for oil may well have peaked in the developed world, the International Energy Agency said on Thursday, postponing further any possible supply crunch. But emerging nations still want more, the IEA said.
More efficient cars and the increasing use of electricity and gas instead of oil in areas outside transport, such as heating, have driven the move in the West.
Recession has also played a part.
Before the economic crisis, western Europe and Japan were posting declines in oil demand, but top consumer the United States had sustained robust growth due to an expanding economy and less focus on conservation.
The U.S. pattern looks to have changed, on some forecasts. The recession and use of alternatives such as natural gas and coal are limiting oil use, as is the growing number of smaller, more efficient cars being sold.
“This recovery risks being ‘oil-less’ as far as the OECD is concerned, potentially supporting the argument that OECD demand has peaked,” said the IEA in its monthly report.
Members of the Organization for Economic Cooperation and Development, monitored by the IEA, will account for 53 percent of world oil demand in 2010, down from 54 percent in 2009, the agency said.
While oil use is growing in emerging economies, the flattening out of OECD demand is tempering that growth, deferring any strain on the world’s producers in meeting demand. Producers were stretched in the run up to 2008, when oil hit a record near $150 a barrel.
“With oil demand peaking in the OECD, you will be postponing further into the future the time when we come to test productive capacity again as we did in 2008,” said Harry Tchilinguirian, analyst at BNP Paribas.
WORLD DEMAND STILL RISING
World oil demand is still expected to grow this year and for the foreseeable future, led by China and India. This means a strain on supplies may not be deferred for long.
“You are delaying by a couple of years, but in between the main uncertainty is how policy evolves in non-OECD countries,” BNP Paribas’ Tchilinguirian said.
“Here, much will depend on the pace of price reform, energy efficiency of the booming vehicle fleet and government policy.”
Oil demand in the OECD has become less sensitive to economic growth than in the past and fuel switching means sudden bursts of cold weather have less impact on heating oil consumption.
OECD demand for heating oil will fall in the first quarter despite the severe winter, according to the IEA, which said fuel sources such as gas, renewables and nuclear power were becoming fuels of choice.
The trend of flattening OECD demand and rising consumption in developing markets also suggested the established seasonal oil demand patterns will wane in future.
“Traditionally the seasonality in oil demand was the summer driving season and winter heating season,” said Mike Wittner, analyst at Societe Generale.
“As non-OECD demand keeps growing, the traditional seasonality in global demand patterns is going to become less and less.”
While advocates of reduced oil use may be beneficiaries of peak OECD oil demand, the oil refining industry in those markets looks to be a main loser.
Total SA’s CEO, Christophe de Margerie said on Thursday that more refinery closures were needed in OECD countries due to fuel product overcapacity.
“What’s going on with Total is only a sign that something has to give,” said an industry official who declined to be identified by name because of the political sensitivity of the issue.
“Probably the first refineries to go will be small Japanese refineries and some European refineries. We have a mismatch between refining capacity and where the demand is, and some tough decisions will have to be made.”
