The dynamics of the oil market has changed. The weight of emerging countries in the demand for oil is now at least equivalent to that of industrialized countries. This upheaval reflects the changing balance of the world economy during the first years of the 21st century. Given the evolution of the market and because of what it reflects in terms of economic activity, a new equilibrium has appeared, reflecting a change in the balance of power between industrialized and emerging countries.
It is just a measure, not an explanation but it provides insight into the changing world. Moreover, emerging countries demand will have a stronger impact on oil price than industrialized countries’ behavior can have on it. This dependence is new and appeared in the middle of the first decade of the 2000s. The long period of reduced growth in industrialized countries has reinforced this phenomenon and can also help to understand the American desire to develop shale gas and oil in order to escape at least partially to this constraint.
Three complementary graphs allow a proper understanding of this mutation.
The first traces the share of OECD and non-OECD countries in world oil demand. Until the early 2000s and the emergence of China, this sharing was very supportive for the OECD countries. These latter accounted for about 65% of the demand, while non-OECD countries accounted for only about 35%. In the early 2000s, China became a large player of the global economy after its accession to the World Trade Organization (11 December 2001). This has created a break in the existing balance. From that time the demand from non-OECD countries is growing very quickly, quicker than OECD countries. By taking the projections of the International Energy Agency it can be observed that in 2014 the share of non-OECD countries is higher than OECD countries’ share.
This change in balance has been rapid and reflects mainly the China effect. By removing China, demand from non-OECD countries increased from 30% of the total in the early 2000s to nearly 38% in 2013. It is remarkable but insufficient to explain and understand the rapid increase in weight of emerging global demand growth.
The second graph is simply the weight of China in global demand. Since 1994 its weight in the global oil demand has been multiplied by 3 to now 12%. By comparison the U.S. share is 20.7% in the second quarter of 2013 and that of Europe is 15.3%.
Since the middle of the first decade of the 2000s the contribution of non-OECD countries is much higher than OECD countries’ contribution. This reflects both low growth and higher energy efficiency in industrialized countries. But it also reflects the fact that the dynamics of global growth occurs mainly from emerging countries. In other words, fluctuations in energy prices are dependent on the growth momentum of emerging countries. It may therefore be a major incentive to look for alternative sources of energy in order to gain more autonomy. Choices and orientations implemented to reduce these pressures are very different from one country to another. In America, shale gas is the answer. Europeans have to find their own answer now.
This post in pdf format: Three Graphs on Global Oil Demand