Increased Demand for Oil

September 26, 2023

With oil prices recently climbing back to $90 a barrel (WTI crude), a look at what might cause demand to contract seems timely. It is assumed by many that oil demand declines during an economic contraction. In truth, demand typically simply fails to grow in all but the most severe or commodity price-driven recessions. Global oil demand has only materially contracted four times in the past 55 years.
– Between 1973 and 1975, demand fell by 2.2%, when the OPEC Oil Embargo resulted in oil prices rising from approximately $3.50 per barrel to nearly $11 per barrel.
– Between 1980 and 1983, when the nationalization of Iranian oil assets sent prices from approximately $15 to nearly $40, demand contracted nearly 10%.
– In 2008-2009, demand fell a total of 2.6% in the only instance where demand declined due to an “ordinary” recession.
– In 2020, demand fell by over 9% when the entire world was operating under pandemic restrictions.
Clearly, it takes rather extraordinary circumstances to precipitate net declines in energy consumption, which has thus far been equivalent to oil demand.

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