The Best Estimate of Crude Oil Demand

    These days there are many estimates of what the world demand for crude oil will be for 2016.I made another estimate of world demand in my Workathon blog dated November 5, 2015.That          estimate was for 100 million barrels per day;I have seen other estimates for this same amount.But surprisingly there are quite a few estimates for 95 to 96 million barrels per day.In fact, I have seen one recently in the Wall Street Journal for 95 million barrels per day.This should carry some weight as the Wall Street Journal is a prestigious and thorough paper.
        Elasticity of Demand
   The  low  figure given in the Wall Street Journal was based on theoretical studies of the elasticity of demand.This ,of course, is the only scientific way of calculating the total world demand.The study quoted showed an elasticity of demand at between .2 and .3.Therefore a 10% decrease in the price of oil would result in a 2 to 3 percent increase in the demand for oil.A 55% decrease in the price of oil which is what happened in 2015 would result in a 10 to 15 % increase in the demand for oil.This would make the increase in the demand for oil in 2015 at about 1.3 million barrels per day.That would make  the estimate of 95 million barrels per day for 2015 total consumption to be pretty accurate.
  But I have seen  studies by the University of Calgary  (which is a motivated author) that shows there is both a short term and a long term elasticity of demand.U.of C. agrees with the studies cited in the Wall Street Journal as far as the short term elasticity goes.The short term elasticity is only about 2 or 3 %.But they add there is a separate  and larger factor to consider,namely,the long term elasticity.U.of C estimates that the long term elasticity which takes effect over a 4 to 6 month period is  about .75.Ths blog believes that most other studies have not looked at the long term effect on a substantial price reduction for an almost essential good- that being crude oil.
           The International Energy Agency (IEA) Estimate 
                            

                                                                                  

The International Energy Agency is the foremost authority on the demand and supply for crude oil.Their forecasts are not necessarily the most accurate but they do have considrable weight.But their estimates of actual production are generally considered very accurate.They stated (in a press release) that production in September, 2015 was 97 million barrels per day.And they forecast growth in demand for 2015 and 2016 at 1.2 million barrels per day.Production for early 2015 was for 94 to 95 million barrels per day.If production was already at 97 million barrels per day in September it could hit 97.5 million barrels for December, 2015.As demand will increase not drop at these prices.This puts the growth in demand at 2.5 to 2.75 million barrels per day for 2015 and 2016;it is fairly clear that the growth in demand will be more than the original estimate of 1.2 million barrels per day.That means that demand (and hence production) should be quite close to 100 million barrels per day by September, 2016.

 Summary   

This blog concludes that most other studies (including those published in the Wall Street Journal) have underestimated the elasticity of demand.And this is because of the inability to consider the long term elasticity of demand.Over a 4 to 6 month period substantial reductions in the price of an essential good will change the demand patterns.In fact, since the price of oil has dropped further since the U.of C.  study it can only be assumed that the long term impact of a further price reduction is likely to be greater not less.                           

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