World oil demand’s shift toward faster growingand less price-responsive products and regions
by Joyce M. Dargay and Dermot GatelyFebruary 2010
Using data for 1971-2008, we estimate the effects of changes in price and income on world oildemand, disaggregated by product – transport oil, fuel oil (residual and heating oil), and other oil – for six groups of countries. Most of the demand reductions since 1973-74 were due to fuel-switching away from fuel oil, especially in the OECD; in addition, the collapse of the Former Soviet Union (FSU) reduced their oil consumption substantially. Demand for transport and other oil was much less price-responsive, and has grown almost as rapidly as income, especiallyoutside the OECD and FSU. World oil demand has shifted toward products and regions that arefaster growing and less price-responsive. In contrast to projections to 2030 of declining per-capita demand for the world as a whole – by the U.S. Department of Energy (DOE),International Energy Agency (IEA) and OPEC – we project modest growth. Our projections for total world demand in 2030 are at least 20% higher than projections by those three institutions,using similar assumptions about income growth and oil prices, because we project rest-of-worldgrowth that is consistent with historical patterns, in contrast to the dramatic slowdowns whichthey project.
Joyce M. DargayInstitute for Transport Studies, University of Leeds, Leeds LS2 9JT, England J.M.Dargay@leeds.ac.uk Corresponding Author:Dermot Gately, Dept. of Economics, New York University, 19 W. 4 St., New York, NY 10012 USADermot.Gately@NYU.edu
phone: 212 998 8955; fax 212 995 3932The authors are grateful to Alex Blackburn and Martina Repikova of IEA for assistance with data issues,and Hill Huntington for helpful suggestions. The usual absolutions apply. Gately is grateful for supportfrom the C. V. Starr Center for Applied Economics at NYU.JEL Classification: Q41Keywords: oil demand, income elasticity, price elasticity, asymmetry, irreversibility.