Commodities | May 22 2009
By Chris Shaw
Earlier this week the Obama Administration in the US announced it was bringing forward requirements for more strict fuel economy standards in cars and light trucks, requiring new vehicles to achieve average efficiency of 35 miles per gallon by 2016.
According to Barclays Capital, while the move supports the view US gasoline demand may have peaked it isn’t of any great significance for the balance of the oil market as there remain the issues of structural demand increases in emerging markets and structural production declines in non-OPEC nations.
The result of these issues has been a need for consumption in the developed world to be reduced and as the analysts note this is best achieved by higher prices, policy initiatives or a combination of both, as the status quo cannot be sustained over time.
In other words, Barclays takes the view US oil demand simply cannot grow at the same rate in the next decade as it did in the previous one, so even if US demand were to fall by as much as 500,000 barrels per day by 2017 it wouldn’t alter expectations for ongoing tightness in the oil market as such a fall is already being factored into long-term estimates.
As an example, the analysts suggest such a decline in US consumption is roughly equal to what Chinese demand could increase by under normal conditions. Also, the analysts believe it is similarly equal to a relatively optimistic forecast for the level by which non-OPEC supply could change over the next few years.
Barclays argues news of policies to lower gasoline demand in the US won’t have a big enough impact on the global supply and demand picture for oil to impact in any significant way on the medium-term trend of a tightening oil market.