The Possibility of an Early Demand Destruction - Barış Sanlı


We have no tools other than past experiences when trying to survive an energy crisis. There are nuances between crises, but the elements are consumers, prices, and geopolitics at the most basic level. Every time there are differences from the previous crises, this time is no exception. In this crisis, the most important difference is the availability of data. From Google and Apple, we have aggregated mobility data. These data reveal to us the underlying dynamics of oil usage. So far in the US, we have seen two different data. One of them is the Vehicle Miles Travelled, and the other is gas consumption numbers from Gasbuddy-like platforms.

In VMT, we see a strong base for transportation due to trucks, but other vehicles’ have been seeing a drop in usage. The demand for travel looks a lot weaker. Contrasting to this data is Gasbuddy data, showing an increase in demand.

In very simple terms, are people consuming more gasoline but traveling less? There are contrasting data on this level. US’s EPA report on “Automotive Trends” claims real-world emissions and fuel economy have improved for years. Since 2005 the improvements are obvious. But the devil is in the details. The first one is classification. In the US, 4000 pounds (1800 kg) is the limit to differentiate between car SUVs and truck SUVs. There is a linear relation between CO2 emissions and car weight. The engines are much more efficient. All vehicles are at least 79% more power-packed. Horsepower and emissions are also correlated despite having a lower correlation coefficient than in the 1970s. 0-100km has also dropped 50% since 1978, and we have 50% faster accelerating cars.

So cars are much more efficient, faster, heavier, and clean. But these are machines. We must look at driving habits too. Unfortunately, we do not have widely available reliable data on this. Why does all this matter about our assumptions about demand destruction?

If all the data is correct and real-life proven, the consumer demand for oil should not lose steam until 200$/barrel. The June 2008 price for oil was 147$/barrel(193$/barrel of 2022). But that price record was reached much slower way such that consumer has adjusted their consumption gradually. The recent one is much faster. The consumer may panic and act faster.

My theory is baseless. But covid has attached more drivers to their cars. But also the driving habits of drivers are not that efficient. The engine may be efficient, but users are not. They have the most powerful cars of their generation. What is this power for? Just to drive more efficiently.

So, the consumption increased, but travel miles have dropped. We may be much more inefficient than in 2008. Therefore, the gasoline expenditures in the budget may be higher despite lower travel numbers. We may be in a worse situation than in 2008, but this brings hope. The oil demand destruction may happen at much lower prices. We will see.