It appears that investment banks and the business publications are all vying to be the one who can predict Peak Oil Demand as the story is being repeated in the news, you can find a few examples here, here, here, here, here, here, and here. The argument is that as the year over year growth rate is getting smaller it must mean that the world is weaning itself off oil. As a caveat, please remember these same forecasters were worried about Peak Supply 10 years ago and it is unlikely their forecasting ability of future events has improved.
I believe Peak Oil Demand will happen, someday, when? I do not know, but their current argument represents a logical fallacy. When the numerator grows slower than the denominator the same size increase causes a smaller growth rate. Jack Welch, former CEO of GE, once supposedly said
“If GE kept growing at 5% per year soon we would be bigger than the USA”, or something similar when explaining the smaller growth rate.
Each year since 2013 net consumption growth has been between 1-2 million additional barrels per year.
During that period total demand has gone from 93MM bbls/day to 99MM bbls/day. Demand is at an all time high.
Net growth seems fairly consistent and as the denominator gets larger the growth rate gets smaller but the same amount of extra oil is used every year.
Now let us imagine the growth rate argument using an input that is not oil:
Imagine a guy drinks beer every day and the amount grows each year. Each day in year 1 he drinks 3 beers daily and a few sips more that by the end of year 1 he is up to 4. The growth rate on year 1 is 33%. Year two is the same but he starts at 4 and ends at 5. Year 2 has a growth rate of 25%.
As he drinks more and more the growth rate of what he consumes in extra beer gets smaller because the denominator gets larger. At the end of an arbitrary period he is drinking more than he has ever drank before and the net amount he imbibes over and above the original number is the same, but as a percentage it is smaller.
Would a sane person suggest this guy is about to kick his alcoholism? He is at peak beer demand?
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