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It’s no secret that U.S. oil production is on the rise . . . so much so that North America could reach energy independence before 2020. But a lesser-known fact is that U.S. oil consumption is also picking back up, reversing a downward trend that persisted until last year.
U.S. oil demand rose by 390,000 barrels per day in 2013, according to recently released data from the International Energy Agency (IEA). That 2% increase might not seem like a lot, but it reversed a long-term trend of declining demand. And it came as quite a surprise to many analysts following the energy markets.
What’s more, demand in the fourth quarter appears to have been accelerating. And this has led the EIA to reverse its prior forecast of lower demand in 2014 with one calling for yet another year of higher consumption.
The implications of this emerging trend are far-reaching. It’s not just that Americans are buying more SUVs and cranking their thermostats to combat a cold winter – although both are contributing to some oil demand in recent months.
It’s much more about the global shift in energy production and consumption, and what it means for the economies of those countries.
Growth in many emerging markets has been slowing. The “BRICs” — Brazil, Russia, India and China — were responsible for much of the world’s growth in oil consumption over the last decade. But that is changing. According to the Financial Times, oil demand in China in 2013 was the weakest it’s been in six years — just 295,000 barrels a day.
Meanwhile, the U.S. recovery has been helped along in no small part because of its energy boom. Exploration, production and distribution means, in part, job growth. And it also means easy access to energy for the recovering industries that need it.
Perhaps I’m simplifying this a bit too much. But the big picture certainly shows that the U.S. economy is picking up steam, albeit slowly, while many emerging markets are cooling off.
Is there a connection to oil production growth? I think it’s a fairly safe bet to say “yes.” Domestic oil production gives the U.S. a competitive advantage that it has lacked for decades. And consumers and industries alike are taking advantage.
The next logical part of the discussion is what the U.S. should do with excess crude oil production when it comes. There are a lot of people who think the country would benefit from exporting excess production, and production of lighter oil that may best be refined overseas.
Exporting crude would require that the U.S. government reverse its ban on crude oil exports. The ban has been in place since the 1970s, but clearly a lot has changed since then.
There is going to be a lot of talk about this in 2014. For energy investors, the takeaway message is that we need to consider more than just the U.S. production growth angle. There is the consumption angle, too. And that angle is one we haven’t had to consider, given that demand was in decline.
Now, we need to broaden our perspective. I’ll have more to say about this in the coming months.
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