RECORD GLOBAL OIL DEMAND: Even As The Price Of Oil Declined

There is this notion put forth by the media that a decline in global oil demand caused the huge drop in the price of oil.  Ironically, global oil demand is higher than ever… that is, according to the IEA – International Energy Agency.

Not only did the world consume the most oil it had ever in the third quarter of 2014, it was 600,000 barrels per day more than it did in the same period last year.  In Q3 2013, global oil demand was 92.5 million barrels per day (mbd), compared to 93.1 mbd in Q3 2014:

Total Global Oil Demand 2013-2014

As we can see from the chart, global oil demand was only 90.6 mbd in the first quarter of 2013, increased 1 mbd in Q1 2014 to 91.6 mbd and then jumped up to 93.1 mbd in Q3 2014.  I don’t see any falling demand here.

Now, if we go back to the 2008 collapse in the price of oil from $148 down to $30, it did occur on the back of falling world oil demand.  In the first quarter of 2008, global oil demand was 87.4 mbd, but just three-quarters later, it declined 2 mbd to 85.4 mbd:

Total Global Oil Demand 2007-2008

Furthermore, global oil demand was down 1.9 mbd in a year’s time from 87.2 mbd in Q4 2007, compared to 85.4 mbd in Q4 2008.  Thus, the fall in the price of oil did take place as world oil demand declined significantly.

On the other hand, global oil demand is forecasted to increase from 92.8 mbd in Q4 2013 to 93.5 mbd in Q4 2014.  So… what gives??  How can the price of oil fall as demand increases??

Well, that’s a good question.   I believe the fall in the price of oil is due to a DECLINE OF EXPECTED DEMAND on top of INCREASED SUPPLY.  In their May 2014 OMR Report, the IEA forecasted that global oil demand would be 93.5 mbd in Q3 and 94 mbd in Q4.  Unfortunately, demand is 400,000-500,000 barrels per day less than what was forecasted.

You see, it doesn’t take much to disrupt the balance and price.  However, as we can see, actual global oil demand is higher not lower than what took place during 2008 when overall demand fell 2 mbd.

Did the U.S. Purposely Destroy Global Oil Demand?

There are many opinions as to why the price of oil has fallen more than 50% in the past four months.  Some believe it’s the Saudi’s and the U.S. working together to destroy Russia, while others believe it’s the Saudi’s trying to kill the U.S. Shale Oil Industry.  And then we have the media who attributes the huge fall in the price of oil due to weakening demand as economic activity falls.

I actually believe the fall in EXPECTED OIL DEMAND is due to the U.S. instigating sanctions on Russia.  Let me explain.  Sanctions on Russia really began to have an impact in the beginning of the second quarter of 2014.  According to the article, U.S. Sanctions On Russia Begin To Bite:

Russian markets took another knock Friday as sanctions imposed by the U.S. over the annexation of Crimea began to hit oligarchs and their businesses.

Moscow’s MICEX index fell more than 2% — taking its losses for the year to 14%. The ruble was steady, after dipping early in the day, but has still lost about 10% since the start of the year.

And President Obama warned Moscow the U.S. would target key sectors of the economy if Russia escalates the crisis in Ukraine.

Then in the third quarter, economic activity continued to soften… Russia’s Economic Growth Slows For A Third Quarter:

MOSCOW—Russia’s annual economic growth continued to slow in the third quarter, as gross domestic product added 0.7% compared to the same period of 2013, the Federal Statistics Service preliminary data showed Thursday.

Russia is on track to post its weakest economic growth since 2000, the first year Vladimir Putin was president, excluding the year 2009 when the economy contracted under the burden of the global financial crisis. Massive capital flight on the back of Western sanctions and a recent decline in oil prices pose additional headwinds for the commodity-dependent economy.

Not only has Russia’s economy suffered, so have countries in the European Union that were dependent on trade with Russia.  According to the article, Eurozone Growth To Slow As Germany And France Falter:

The eurozone economy will grow more slowly than expected during the rest of this year as global conflicts continue to undermine business confidence, Europe’s largest central bank has warned.

…. It said conflicts in Ukraine and elsewhere – and European sanctions against Russia – were also affecting corporate sentiment, undermining the growth predicted for the rest of 2014

If Russia and the European countries are experiencing a weakening of economic activity… how does that impact OIL DEMAND??  When you start to consider all the countries impacted by the Russian sanctions, then a decline of “Expected oil demand” starts to add up.

One more thing, the IEA forecasted that global oil demand would be 94 mbd in Q4 2014.  However, it fell short by 0.5 mbd of the expected 94 mbd, which is only a decline of a half percent.  Think about that for a minute.  The price of oil declined 50% in the past four months on a decline of 0.5% of expected demand.

I dear say… it doesn’t take much to curtail economic activity to slow down global oil consumption by 0.5%.

Let’s take a look at the current SUPPLY vs DEMAND situation in the global oil market:

Global Oil Supply vs Demand JUL-NOV 2014

According to the IEA’s May 2014 OMR Report, the world was expected to consume 93.5 mbd of oil in Q3 and 94 mbd in Q4.  As we can see (shown by the RED BARS), overall oil demand was 400,000 barrels a day (bd) less than forecasted in Q3 and 500,000 bd less than Q4.

As economic activity weakened due to the Russian sanctions, the IEA’s expected global oil demand fell short.  The RED BARS are quarterly oil demand figures released by the IEA and the OIL BARREL BARS are actual monthly supply.  From Jul-Nov, global oil demand averaged about 600,000 bd less than supply.

However, the oil supply vs demand equation was a much less than what took place in the second half of 2008:

Global Oil Supply vs Demand JUL-DEC 2008

In the chart above, global oil supply was 2 mbd higher than demand in July 2008.  Demand continued to fall in the last quarter of 2008… and so did supply.  The reason for the big decline in global oil supply in September was due to hurricane activity in the Gulf of Mexico.

The huge decline in the price of oil in 2008 was due to demand destruction stemming from a collapse of economic activity as the U.S. Housing and Investment Banking System imploded.  However, I believe the present decline in the price of oil is a direct result from an U.S. orchestrated collapse of the Russian economy.

We must remember, a slight decline in economic activity across many countries will also impact oil consumption… a few ten’s of a thousand barrels a day lost here and there add up.

A Rising U.S. Dollar Also Negatively Impacts Oil Producing Countries Economic Growth

While the Main Stream media continues regurgitate the notion that falling oil prices act as an economic stimulus, they only do so for countries that act as a PARASITE on others… such as the United States.

Before I get into that, let’s look at the U.S. Dollar vs Oil Price chart:


What a perfect MIRROR IMAGE… the price of oil declined in exact opposite fashion as the rise in U.S. Dollar index.  This is one of the benefits of being the world’s reserve currency.  Not have the U.S. sanctions on Russia impacted the Russian and European economies… it’s also wreaking havoc on Middle Eastern and other oil-producing nations.

According to the IEA’s December OMR Report:

  • sharp declines in the value of many currencies, compared to the US dollar, have minimised, if not negated, the impact of lower crude prices on local-currency, retail product markets, even as they have raised the price of imported goods and services, thus putting a dampener on consumption.
  • lower oil prices significantly dent potential export revenues in net oil-exporting countries, slashing their income streams and in turn denting demand. In particularly cash-strapped economies, such as Venezuela and Russia, this impact is likely to be magnified as the risk of default escalates.

So, what we have here is a typical DOMINO EFFECT set off by the U.S. sanctions on Russia.  I believe if the United States didn’t meddle in Ukraine or apply sanctions on Russia, economic activity and oil demand would have remained strong… along with the price of oil.

How about China?  Some believe the weakening Chinese economy is to blame for a fall in oil demand.  Again, according to the IEA, China is forecasted to consume 10.3 mbd of total oil products in 2014, up from 10.1 mbd in 2013.  This turns out to be 100,000 barrels a day less than the 10.4 mbd, the IEA forecasted at the beginning of the year.

So… while China is consuming less than expected, it’s only one-fifth of the 500,000 barrels a day of lost global demand forecasted by the IEA in May of 2014.  Regardless, global oil demand continues to increase even though its less than previously forecasted.  This is a much different situation than FALLING DEMAND as we experienced in the second half of 2008.

Furthermore, the IEA forecasts that global oil demand will continue to increase in 2015 at 900,000 barrels per day more than 2014… even with the downward reversions due to weakened economic activity and geopolitical factors.

The U.S. Shale Oil Industry Has The Most To Lose

The U.S. Government may have shot itself in the foot by instigating sanctions against Russia, which negatively impacted economic activity and global oil demand…. thus causing a 50%+ drop in the price of oil.

While Russia and Saudi Arabia would much rather receive $100 for their oil rather than $50, the high-cost U.S. Shale Oil Industry is about to receive an enema.

Already CLR – Continental Resources, the largest company drilling in the Bakken, spent $1.1 billion more on capital expenditures Q1-Q3 2014 than they received from operating cash flow.  And this was when the price of oil was $93 a barrel.   How bad will it be for Continental  at $45-$50 oil??

Sure, maybe some of these companies have hedged production at higher prices, but I doubt they hedged 100% and for what time period?  I believe we may soon see a peak and decline of oil production at the Bakken and then at the Eagle Ford.. the two largest shale oil fields in the United States.

The lower oil price is already impacting the U.S. shale oil industry as drilling rigs at the Bakken and Eagle Ford are declining .  I would imagine the situation will get much worse in the second quarter of 2015, when the majority of backlogged wells already drilled (awaiting fracking) have been brought into production.

If the price of oil does not recover in the first half of 2015, we will likely start to see a decline in production at the Bakken, followed by the Eagle Ford.

As I have stated several times before, the peak and decline of U.S. Shale Oil Production is the DEATH KNELL to the U.S. and global economy.  This will have grave implications for most paper assets going forward.

Gold and Silver will turn out to be some of the best investments to own in a peak oil environment.

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26 Comments on "RECORD GLOBAL OIL DEMAND: Even As The Price Of Oil Declined"

  1. Outlookingin | January 8, 2015 at 2:55 pm |

    Steve, one word of statistical caution. The International Energy Agency (IEA) was established in the framework of the Organisation for Economic Co-operation and Development (OECD) comprising just 29 member countries. It does not include most of the worlds population, nor the biggest oil producing countries.

    In this new era of untruthful governments, banks, other financial entities and multi-national corporations, it would be foolhardy to place absolute trust in any body of statistical pronouncements.

    Case in point is the IEA/OECD does not even include Russia (now acknowledged as the worlds largest oil producer) Saudi Arabia (second largest oil producer) nor China, India, Africa and their populations, all of which consume energy.

  2. Interesting. Even Obama is cautioning that oil won’t stay this low. He knows if it does Shale really goes offline and a huge problem will develop. So oil will head higher.

    BTW, did you see Ted Butlers reply to yours? I think Butler is right on this one. And if you read this is REALLY all adds up:

    It is clear that JP Morgan is buying silver, shorting gold, and long the Nikkei. Only a banker like them would pull something like this off.

    • frank,

      I don’t believe Ted is “Right on this one”.. as it pertains to SILVER EAGLES. However, I do believe he is correct that JP Morgan may indeed by stockpiling wholesale silver. Who knows??

      If Ted Butler is “RIGHT ON”, than why did Indian silver imports skyrocket to 2,500 metric tons during October and November, nearly half of total silver imports in 2013, when the price of silver declined below $15??


      • I think Ted is still partially right about the Eagles. Look, as you know, JP Morgan was getting fried on their silver shorts as silver raced toward 50 per ounce in 2011. You know as well as anyone the lengths they went through to slam silver by jacking up margin requirements, and paper selling in overnight markets on Sunday during Asia holidyas, etc.

        JP Morgan is no doubt in my mind making sure they NEVER have to worry about that scenario again. Everything Ted says adds up. It also adds up when you can see how some large bank/banks have been shorting gold through the repo markets, yet they have ALSO been buying silver as a hedge on their long Nikkei/short gold trade.

        Think about it. You could be short gold/long silver in a lower dollar denominated pair trade. If the short gold blows up on the bank/banks…..the silver will actually carry the pair HIGHER.

        Meanwhile, if there ever is indeed a shortage—and there was going to be one–no one is in a better position than JP Morgan to see it. They are after all also the custodian to the Silver ETF that supposedly has silver backing it.

        So it really is the perfect crime. And no one is every going to do anything about it. Silver is a better deal in India than gold….the tax duties are as bad, and the Indians are well aware that silver is a better deal. So that is all the story with that.


  3. GermanReader | January 8, 2015 at 5:47 pm |

    Great analysis of the oil market, thank you Steve. After a very frustrating 2014 (for Silver investors) i am looking forward to the bust of the Fracking bubble and the final implosion of our fraudulent financial system.

    • GermanReader,

      I don’t look forward to the bursting of the Shale Oil Industry, but it was going to occur sooner or later. You see, once we start to see a decline in overall oil production from the Bakken & Eagle Ford, then there is NO PLAN B.

      ….IT’S ALL DOWNHILL AFTER THAT. As I stated in several interviews, this is a COLLAPSE we don’t come out of.

      Which is why a smart investor will park their hard earned FIAT MONEY in gold and silver.


      • Absolutely ! However, there seems to be no end to the lies and ammunition TPTB will use to keep this Ponzi scheme rolling. So, it’s a not if but when will there come the reckoning.

  4. Have you forgotten the collapse of gold and silver prices despite record demand and the physical metal cleaned out to bare vaults?

    Crude oil supply & demand are not factors. The tanks were overflowing when oil was at $3 as well as $100. It’s one big rigged conspiracy all about money and political agenda including shale oil and alternative energy technologies, Russia-China-Iran-India-Venezuela link, etc. Major threat to Saudi Arabian oil market share and the bank accounts of the terrorist POS that rule it started the price manipulation that keeps escalating. Years of brain dead incompetent US-British foreign policy is driving major political re-alignment worldwide pushing the US and Brits to the back end of the bus with the Africans and they aren’t liking it. The axis of evil is the same players: USA-Saudi-Israel-Britain-France. Implementers: same crooked banksters/traders all in collusion with the same government (those 5 are now singular, not plural).

    Don’t be fooled by the media propaganda machine controlled by the same conspirators. World War 3 is what’s going on and escalating very rapidly. This war adds cyber hacking and financial derivatives trading as new weapons of mass destruction. As or more dangerous and potentially devastating than all the armies on earth.

    • Melissa P,

      While I agree with you that the typical EVIL PLAYERS are behind the geopolitical events currently taking place, the “TANKS WERE NOT OVERFLOWING FROM $3-$100”. I agree that conspiracies take place, but not EVERYTHING is a conspiracy.

      The FALLING EROI- Energy Returned On Investing and PEAK OIL are real physical factors that CONSPIRACIES and MANIPULATION TACTICS cannot control.

      For some strange reason, many people still fail to grasp the simple science of GEOLOGY and declining oil reserves… especially low-cost oil reserves.

      The collapse of the WEST will begin to occur in earnest when we see the PEAK OF U.S. SHALE OIL PRODUCTION. Let’s just say, the end is near when the PHAT SHALE OIL LADY SINGS.


      • “For some strange reason, many people still fail to grasp the simple science of GEOLOGY and declining oil reserves… especially low-cost oil reserves.”

        I have a degree in Geology and the eventuality of peak oil was presented by one of my PhD professors with numerous backing facts [average depths of new finds, climatological difficulties of new finds like extreme cold or in the ocean, declining number of new finds, increased costs of mining oil, etc.]. This was in the mid 1970’s.

        Many do not have a factually oriented mind. They have no idea what scientific methodology is, and no regard for facts that come from science. They believe what they want to believe, or what some half-baked pundits have wrapped in emotions for them to believe. More people need to develop more discerning minds.

  5. Industrial economies being fed by low rates are going to demand as much oil as you can feed them. What’s wrong with the thesis that the bankers just pegged oil at 80-120 USD for four full years just to see how much shale they could get at a price just under where it would accelerate the breakdown of the US? Now the numbers are in and they can’t turn over another 4-6 year credit cycle with what they’ve got. Time for another crisis. Cuomo just banned fracking in NY and the federal clean water act will be reinstated. Monteray was written down 96% this year. Shale’s done. Shale has been carrying the marginal production since conventional peaked in 2005. The peak oil guys were RIGHT.

    • mossmoon,

      Excellent theory. However, I do believe the oil price was ELEVATED due to the propping up of the markets by the FED & CENTRAL BANKS. I have said it more than a dozen times…. without the FED’s liquidity, Americans and the rest of the world could not afford expensive SHALE OIL.

      So, in a nutshell… the Fed & Member Banks were the reason the market experienced elevated oil prices over the past 4 years.


    • lastmanstanding | January 9, 2015 at 10:27 am |

      Some first hand info to contribute regarding oil/fracking.

      My neighbor has a fracking support biz in the Bakken. He had a record year in 2014 and was shut down in early Dec. He was told that there would be work in Jan…at rates 20% less than were paid in 2014. He quickly moved OUT of oil.

      Another friend is an oil/gas trader with an international co. out of Houston. He says the Bakken is done. This guy is very, very savvy in this biz. He says that he can make lots of $ when there is volatility…I goes without saying that those above are making money on volatility…currently, there is a lot of it.

      Another friend has been employed in the Bakken for the last seven years on drilling rigs. They always tell him at the end of a stint, when to be back. This time he was told not to return.

      A young man that I helped raise is a top exec. at Continental Resources. HH, took him under his wing and is grooming him for the future. I had no idea that he was a senior exec. in the company. He learned the biz from the ground up and is college educated.

      At the Christmas party, they were told by HH that the oil biz is changing rapidly and that they would have to follow to survive. They were told that everyone would be kept in employ regardless.
      That has since changed and layoffs have started. HH was very somber about what was happening to the biz. Continental is a very family oriented business. Employees who are hardworking and loyal are the foundation of the company.

      I have several friends who are in heavy equipment sales and have family working throughout ND, Wy, Mt…they are shifting their biz towards central Mt. These guys have tentacles all over this area.

      Finally. We had a 4.9 earthquake last Sat. It originated from Challis, Id. For days afterword there were many aftershocks. Not uncommon. At the same time central Okla, southern Kansas, the Dallas, Tx area and Lakeview, Oregon were all getting quakes. Quite a few over the last week and some of these areas are still having them. Especially, Tx, Ok. I think there was also one in central Utah during the last week.

      I have only been looking at the info on the site since then. I am by no means and expert on quakes but what was interesting is that there are no major “gub listed” faults even close to the areas mentioned above. What I did find using a bit of logic especially in the Idaho and Oregon quakes was are they fracking there…both of these areas are in the middle of bf Egypt…a quick google search came back, yes, and for years. Also, last night an Anthropogenic quake happened near Bend, Oregon. ODD. An anthropogenic quake is a human caused quake. I am still looking into what happened, etc. My first thought was some kind of detonation. Perhaps a mining blast. Continuing to look into it.

      The major faults are rumbling as well. It is interesting to see if there is any correlation between fracking and the quakes. Everyone should be informed and draw their own conclusions.

      I’ll spare you my opinion, but I am curious as to how the earth will deal with this shit.

      Thanks Steve for all your research and hard work. It appears the methane thing in the Arctic is heating up.

  6. I get the feeling that too many are myopically focused on Peak Shale oil. It is as if they are sitting at the roulette table holding their breath waiting for the ball to drop. The truth is the US, to the rest of the world, apperas to be finally recovering real growth while they are all contracting. There are exactly three countries benefiting from current low oil prices. The US (90% are not hurt by low oil prices), the Suadis as there costs are so low and the Chinese, even though their economy is slowing and like their gold purchases, they are filling their oil reserves at a bargain price.

    The likely scenario for any collapse is a prolonged world economy deflation with fits and starts as it unravels. There are major movements in energy industries to move to LNG (currnet price $2.97/mmbtu) – that is something like $33/brl of oil equivalent. LNG is essentially methane, the mosy common flamable molecule on the planet and one that is easily synthesised in vast quantities. They have been manufacturing a 9L engine for LNG and are now starting to make a 12L for LNG for long haul trucking. Pilot/Flying J is installing LNG feul pumps in is stations across the continent. If they can make engines for big trucks how far behind are engines for earth movers?

    The manipulator bankers are good at this game and will not go quietly into the night. The peak oil diminishing EROI will be a complicated and prolonged dance. And while the outcome is probably inevitable, some of us may not see it in our lifetime.

    Don’t give up the faith or the fight but get some perspective and keep on stacking. Buy for cash and stash.


    • SteveW,

      You couldn’t be more wrong about peak of Shale Oil. However, I am not going to get into it… not a good EROI. Anyhow, LNG is a DEADEND. I know several LNG facilities built at Flying J’s and other facilities that are just sitting there IDLE.

      The U.S. still imports about 10% of its natural gas demand. How are we going to switch to LNG to run the highways when we don’t have enough to supply demand as it is now. Furthermore the U.S. Shale Gas Industry is in just as much trouble as the Shale Oil industry.

      Break-even for typical shale gas well is $6-8 mmbtu. Current price of natural gas is less than $3. The shale gas industry is heading for a collapse.

      Just a matter of time.


      • Steve, Sorry I didn’t make my point clear. I too am often humbled by the written word.

        I agree with you. My point was that the path to a reset is not a straight line but rather a convoluted and twisted one full of smoke and mirrors. Lng is one of them. It will be used in an attempt to maintain confidence in the current system. To delay as long as possible the inevitable.

        If, in 12-18 mos when oil starts to recover, shale oil & gas does not go back into full production, the Congress will pass a whole slew of tax benefits and other subsidies to insure every last drop finds its way to market. It will be just another way of trying to maintain confidence in the system.

        The only way all of this bs can be short circuited is if enough of the market recognizes what is going on, comes to it senses and everyone starts the move to gold and silver. I find this highly unlikely. The lure of higher and higher paper prices will keep most with their heads in the sand.


      • If the demand begins to exceed supply we will see higher prices. The higher prices will encourage more drilling. If your figures are right the gas price will probably rise to $6 per MMBTU. The response time should be fairly fast.

  7. This is the year the Fed will launch the largest QE the world has ever seen. They will succeed in creating an inflationary environment, in which oil, gold, silver, along with all other commodities will rise. That’s when the real problems will start. It’s quite easy to counter falling prices – just create more money out of nothing and find ways to distribute it. But there’s no recipe for runaway prices – the Fed can’t raise interest rates to 20% as Volcker did. As bad as it is for many industrial players that oil is now below $50, it will be much worse for consumers to have to pay $200 for that same oil. And having such crazy volatility $100 > $30 > $200 in oil, and similarly in other assets, will be the reason why the USD will be stripped of its reserve currency status.

  8. Hi Steve,

    Many thanks for your analysis of the oil-market.
    Regarding gold and silver, you keep suggest them being a good investment for the future and I totally agree. However I often consider to put some money in the mining-shares. But in coming years with perhaps fuel-shortage, and with declining ore-grades, isn´t the risk too high with the shares?
    Some suggest all paper will burn in the future, including mining-shares, for varius reasons. What is your view on that?

    Best regards

    Markus (from Sweden)

  9. There are (2) typos in the first chart.

    3Q13 is mislabeled as 3Q14
    4Q13 is mislabeled as 4Q14

  10. It would be really interesting to see the demand and supply with biofuels and natural gas liquids kept separate. I suspect they have slightly different market dynamics. I notice there’s a trend to list them all together, and this may be clouding the way we look at the market.

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