World Oil Use Surges, Shatters Expectations : U.S. Imports Rise Sharply as Production Tumbles
Led by a surge in consumption in the United States and Japan, the world has apparently been using about 1 million more barrels of oil per day in 1988 than government and private economists believed as recently as a few months ago.
A leading private forecaster this week sharply boosted his estimate of the year’s growth in world oil demand to 3% to 4% above 1987 levels, compared to a previous estimate of 1.8%. An Energy Department forecaster said the government also will be revising its figures steeply upward.
It is the second straight year in which demand for oil has significantly exceeded most projections. In addition to economic growth, the unexpectedly strong numbers are laid to lower prices for oil, which encourage its use by motorists, electric utilities and others.
Several economists said the fact that the world has been using more oil than realized helps to explain why massive overproduction of crude oil by the Organization of Petroleum Exporting Countries didn’t cause an outright crash in prices this summer and fall.
Edward N. Krapels of Energy Security Analysis Inc. in Washington, whose analysis of world oil movements is followed closely by industry and government economists, stressed that some of the big increases in oil use might prove transitory.
May Affect Bush Policies
Taxes imposed this year in Europe and Japan will tend to limit consumption, while any price rise that might result from the stronger demand will diminish oil’s current appeal as a cheap alternative to natural gas in the production of electricity, he said.
However, other data this week further clouds the oil outlook in this country. An accelerating decline in U.S. oil production led to the biggest jump of the year in oil imports, which surged to a 14-year high for November, an industry group reported.
These latest assessments on oil supply and demand could eventually mean higher oil prices. It could also intensify pressure on the incoming Bush Administration to do something about the rising tide of oil imports and hard times in the U.S. Oil Patch.
“The combination of higher demand and lower production comes at an interesting time, politically speaking,” said an Energy Department analyst, who called the upward revisions in oil usage “amazing.”
Since the steep fall in oil prices in early 1986, oil use has repeatedly surpassed forecasts. While the increases are small, compared to those of the pre-oil-crisis days of the 1960s, some experts expected little or no increase because of energy efficiency gains in cars, factories and other users of oil.
A year ago, the Paris-based International Energy Agency had to boost its estimate of 1987 free-world oil demand by nearly 1 million barrels a day. Now, the IEA will probably have to do the same for 1988, according to Krapels.
The international body forecast a 1.8% rise in world oil demand for this year to 49.7 million barrels a day. It now appears that the growth will be roughly 3.6% to 50.7 million barrels a day, according to Krapels’ analysis.
In the United States, growth was forecast by the IEA at 2.2% but will come in at about 3%, he said.
Mark Rodekohr of the government’s Energy Information Administration, which has consistently underestimated oil usage over the past three years, said the private forecasts are “in the ballpark” because of a dramatic increase in the fourth quarter.
Major Increases in Pacific Rim
“They’re not crazy. Our latest short-term forecast was 2%, and that is definitely going to be upgraded,” Rodekohr said. “This is why the massive OPEC production wasn’t as much of a problem as expected. As to why demand is so high, that is not quite as clear.”
Krapels said oil demand appears strong almost across the board, including gasoline, jet fuel and residual fuel oil, which is burned by utilities to make electricity. As the price of such oil fell below that of natural gas, electric utilities have switched once again to oil to power their boilers.
Krapels also said oil use in Japan has grown “faster than almost anyone imagined” and now appears to have grown this year at a 5% rate, compared to an IEA forecast of 3.8%. This is despite a new round of taxes imposed this year by the Japanese government to limit consumption.
The estimates on Japan are similar to those issued recently by the East-West Center in Honolulu, a government-funded think tank which studies the Pacific Rim. The Center also reported double-digit increases in other countries in the region, especially South Korea.
Separately, the American Petroleum Institute reported Monday that U.S. oil production tumbled 361,000 barrels a day in November, compared to October. Imports surged to nearly 8 million barrels a day, their highest level for the month since 1974 and virtually equal to U.S. output.