The Impact of Global Oil Consumption: OECD vs. Non-OECD

David Fessler
by David Fessler, Energy & Infrastructure Strategist Market Trends Market Trends

The Impact of Global Oil Consumption: OECD vs. Non-OECD

by David Fessler, Investment U's Energy and Infrastructure Specialist

Friday, January 27, 2012

The Organization for Economic Co-operation and Development (OECD), headquartered in Paris, was formed in 1961.

Twenty countries are charter members. Fourteen more have been added since it was formed. You can see the entire list of 34 member countries here, and the dates they joined.

Its mission, according to its website, is to “promote policies that will improve the economic and social well-being of people around the world.”

Apparently, it’s accomplished its mission a little too well. You see, the “haves” (us) are about to switch place with the “have-nots.” If you’re reading this, you’re likely in the former, heading to the latter.

How do I know? Simple: One look at the chart below, put out recently by the International Energy Agency (IEA), tells all. Oil consumption from emerging market countries (have-nots) is just about to eclipse that of the old world (haves).

Check it out:

Global Oil Consumption: OECD vs. Non-OECD

This is the only chart you need to look at to know that unless you have your own oil well in your backyard, you’re soon going to experience pain at the pump.

Global Oil Consumption is Changing

Oil demand from OECD countries (the haves) has declined for the fifth time in the last six years. It’s on track to decline again this year. On the other hand, demand from non-OECD countries (the have-nots) is up a whopping 15% in just the last three years. That rate of growth is expected to continue.

It may take a year or two, but it will be the likes of which you have never seen before. And that’s completely discounting any geopolitical events. They’ll make matters even worse and could cause it to happen much sooner.

How do I know? Simple: Economic growth requires energy. Transportation is a big part of economic growth, allowing goods produced to be moved around, and services required to be provided.

Most of the world’s goods in countries that are old world (us) or rapidly growing emerging market countries, move by trucks, ships, trains and planes. They all use vast amounts of oil.

So it stands to reason that an emerging market country - that’s experiencing rapid economic growth - is rapidly increasing its use of oil.

What a surprise; that’s precisely what’s happening. It’s clear as a bell when you stare at the above chart for a second or two.

Many economists figure oil is the culprit creating the global imbalances behind much of the world’s financial woes. If you understand the key role oil plays in any country’s economy, it’s hard to argue the point.

Bank of America Merrill Lynch sounded a dire alarm in its 2012 energy outlook, stating the current growth path of crude simply isn’t sustainable:

“Whether a recession in Southern Europe frees up some oil for China and India to grow on, or whether high energy prices rip through energy sensitive emerging markets such as Turkey, we believe the current path for oil is unsustainable and something has to give.”

A New World Oil Order

The bottom line is this: Right now, oil dictates countries’ fortunes. Without it, or if it becomes prohibitively expensive, economic growth grinds to a halt.

My prediction is that those countries that have oil are eventually going to realize this, and slowly start to curtail exports, just like China has with rare earths. They’ll want to keep an increasing percentage of what oil they do have for their own use.

What will it mean for OECD countries? Depending on fossil fuels for the future simply isn’t a sustainable path, regardless of one’s stance on the whole global warming issue.

In short, rapidly increasing oil prices will force these countries to switch to other sources of energy. Natural gas, solar, wind, geothermal and sustainable biofuels will begin to slowly replace dwindling supplies of oil over the next 10 to 20 years.

If OECD countries are smart, clearly a debatable point, they’ll squarely focus on securing domestic energy supplies for their future sustainability. Especially if they want to remain “haves.”

Good Investing,

David Fessler

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