Demand for oil is weakening

Amy Scott May 12, 2006

KAI RYSSDAL: Let’s not get carried away, here. The IEA says global oil demand will still grow by a million-and-a-quarter barrels a day this year. But that’s about 15 percent less than the agency originally guessed: something near 200,000 barrels. Pull up the old supply-demand equation . . . solve for price . . . and you’d think we’ll start paying less. Marketplace’s Amy Scott reports from New York.

AMY SCOTT: Many viewed today’s report as a sign that consumers are finally responding to record oil prices. The mild winter also helped curb demand. Energy analyst John Kilduff with Fimat USA says countries like China and India that have historically shielded consumers from higher prices are changing course.

JOHN KILDUFF: What we’re really seeing are some of the Asian countries in particular allowing the price increases to flow through. I think you’re seeing that hit those consumers quite hard, and they are responding in turn.

SARAH EMERSON: I don’t think we have established that link yet.

Sarah Emerson with Energy Security Analysis Inc. says the IEA bases its predictions on growth in previous years. She suspects the agency may be adjusting to an anomaly two years ago, when China’s industrial expansion helped fuel a surge in global demand.

EMERSON: I think this is just a case where oil demand just grew very, very, very strong in 2004. And in 2005 and 6 it just hasn’t kept up to that pace.

Falling demand could help ease prices. But between production problems in Venezuela and Nigeria, the nationalization of oil in Bolivia, and the threat of conflict with Iran, analysts say worries about supply disruptions could prop up prices for some time.

In New York, I’m Amy Scott for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.