Enter the U.S. supply boom
Now that oil prices have remained above $80 for a while, “tight oil” production has exploded in the United States. In the past four weeks, U.S. crude oil production has averaged 7.27 million barrels per day, according to the U.S. Energy Information Administration. That’s up more than 1 million bpd from the comparable four-week period in 2012, and up approximately 1.6 million bpd compared with the production rate in June 2011.
Meanwhile, even as the U.S. economy has recovered (albeit very slowly) from the Great Recession, oil consumption has stagnated. People who changed their driving habits in 2008 (e.g., taking public transportation more often) haven’t gone back to their old ways. According to the EIA, petroleum “product supplied” is down 1% over the past four weeks compared with the same period in 2012.
Efficiency gains
Moreover, U.S. vehicle fuel efficiency has grown by leaps and bounds. In 2012, Toyota Motor Corporation (ADR) (NYSE:TM) made a big push to boost sales of its Prius model through the introduction of new varieties of the popular hybrid. The time was right, as gas prices remained high in much of the country throughout the year, and sales grew from 136,000 in 2011 to nearly 237,000 in 2012.
Even when car buyers have opted not to shell out the extra money for a hybrid, they have been choosing smaller cars. For example, General Motors Company (NYSE:GM) saw sales of its subcompact cars (Sonic, Aveo, and Spark) more than double in 2012 compared with 2011. Lastly, on a like-for-like basis, fuel efficiency in cars and trucks is improving, as high gas mileage is now a major selling point. As a result, the fuel efficiency of new vehicles sold in the U.S. improved by about 20% from 2007 to 2012.
Will it be enough?
Oil demand is thus stagnant in the U.S. — and most other OECD countries — as the effects of modest GDP growth are offset by efficiency improvements. Meanwhile, U.S. oil production is growing rapidly because of the shale revolution. The net result is that U.S. crude oil imports have dropped by 13% year to date, from an average of 8.84 million bpd in 2012 to an average of 7.68 million bpd in 2013.
Oil bulls generally argue that modest production increases and stagnant demand in the developed world will be easily offset by surging demand in the developing world, leading to higher prices. China is the most frequently cited example of a large, expanding economy with a rapidly growing need for oil. Indeed, in the past decade or so, China’s oil demand has exploded, growing from around 5 million bpd in 2001 to more than 10 million bpd last year.
Yet the onset of high oil prices has provided a strong motivation for efficiency in China and other developing countries, not just in slow-growing OECD nations. China’s oil consumption is expected to grow by just 4% — 420,000 bpd — this year. This growth will “soak up” less than half of the drop in U.S. imports. U.S. oil production in 2018 is expected to be approximately 3.9 million bpd higher than in 2012, meaning that there is plenty of room for declining U.S. oil imports to continue offsetting growth in China and elsewhere.
