"In the latest Short-Term Energy Outlook (STEO), just released yesterday, EIA is projecting 2009 global oil demand to be 3 million barrels per day lower than we projected as recently as six months ago, in our September 2008 STEO."
As to why this is the case, the EIA states(bolds mine)
"The downturn in the world economy that became apparent in the second half of 2008 curbed, and ultimately reversed, world oil demand growth, something that rising oil prices between 2004 and 2008 did not achieve. While consumption in the Organization for Economic Cooperation and Development (OECD) began to react to higher oil prices in late 2005, non-OECD consumption continued to rise unabated. Demand growth in large non-OECD oil consumers seemed immune to higher oil prices, because: 1) growth was largely driven by their rapidly expanding economies, and 2) many domestic consumers were shielded from world market prices by domestic price controls and subsidy programs."The existence of price controls and subsidies was conveniently ignored by many claiming that this demand growth was permanent/secular.
So what does this mean for oil producers? EIA states that
"members of the Organization of the Petroleum Exporting Countries (OPEC) currently hold roughly 4.8 million barrels per day (bbl/d) of surplus production capacity, while they held an average of 1.5 million bbl/d from 2004 to the peak of the market in 2008."Wait, they had 1.5 million barels a day of excess capacity during the price run-up? They were obviously sitting on that capacity and profiting.
"the lagged impact of high oil prices in recent years will continue to affect oil demand in the short term. During 2007 and 2008, WTI averaged $86 per barrel; these historically-high prices will influence the decisions that individuals and firms make going forward, which will tend to dampen the rise in world oil demand engendered by the return of global economic growth."I know of individuals who have switched to diesel vehicles and run on waste cooking oil produced in their own mini-refinery. That is permanent demand destruction with respect to crude oil. There have been many improvements in fuel efficiencies such as consumers switching to hybrid vehicles and ditching SUV's, that will suppress demand as well.
Finally, the chart of US gasoline prices shows stabilization at around $2.00 a barrel. I think on an inflation adjusted basis that is a reasonable price and will be a new medium term average.