Has Oil Demand from Developed Countries Peaked?

World oil demand is poised for recovery driven by emerging markets, but demand from OECD countries is unlikely return to its 2005 high, IHS Cambridge Energy Research Associates finds


Cambridge, MA — October 20, 2009 — Oil demand in developed countries — currently 54 percent of all oil demand — likely reached its all-time peak in 2005, and while world oil demand is now set to grow as the world economy moves from recession to recovery, the demand lost in 30 developed countries that make up the Organization for Economic Cooperation and Development (OECD) is not likely to ever be regained, according to a new research report by IHS Cambridge Energy Research Associates (CERA).

"The economic downturn has been masking a larger trend in the oil demand of developed countries," said Daniel Yergin, IHS CERA chairman. "The fact is that OECD oil demand has been falling since late 2005, well before the Great Recession began."

The key factor making it unlikely for OECD demand to ever return to its 2005 peak is that petroleum demand in the transportation sector — which accounts for 60 percent of OECD petroleum demand — is likely to flatten out after years of steady growth. Oil demand outside the transportation sector has already been relatively flat since 1980. Now the conjunction of several long-term factors is doing the same to transportation:

  • Demographic and socioeconomic changes — Vehicle ownership rates in developed countries have reached a "saturation" level, while aging populations with low to negative population growth suggest a flattening of demand for mobility. The growth of women's participation in the labor force is also leveling off, meaning the flattening of another source of demand growth.
  • Stronger governmental and consumer push for passenger vehicle fuel economy gains — Energy security concerns and climate change initiatives have led OECD governments to tighten fuel economy standards. The rise in energy prices over the past several years has pushed consumers to value increased efficiency and the auto industry through a major reorientation toward greater efficiency.
  • Greater penetration of alternative fuels and vehicle technologies — Governments across the OECD continue to favor mandates that increase the share of alternative fuels in the transportation sector. New technologies such as plug-in hybrid electric vehicles and next-generation bio-fuels could also have a greater impact in the future.