Invest1 publisher2 min readPublished
World oil and gas use falls for the first time since the pandemic as shortages drag on
Long-running fuel shortages are pushing global oil and gas use into its first annual decline since the pandemic, a Washington Post analysis of IEA data shows. Because missing supply is the cause, the drop so far counts fuel that was never delivered, and any lasting loss of demand will only show up once the shortages ease.
The Investor · Invest desk
What happened
- The Washington Post's analysis finds the shortages are now sharply cutting how much carbon is being released into the atmosphere.
- The pandemic-era drop in fossil fuel consumption was significantly larger, and consumption then was lower in absolute terms.
- Crude oil demand averaged 91 million barrels per day in 2020, against 102 million barrels per day in the IEA's latest forecast.
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Why it matters
- decision Supply investors now have to judge whether this is rationing or lost demand, and deferring projects on it is a bet that buyers who could not get fuel will not want it once they can.
- cost Fuel users who went short are carrying the carbon cut, so the climate gain holds only while the shortage does, unless their habits change for good.
- precedent The only comparable decline, in 2020, gave way to renewed growth, so the default expectation after a shortage-driven fall is a rebound once fuel flows again.
A shortage caps consumption at whatever gets delivered. Consumption figures collected during one therefore mostly measure supply. The Washington Post analysis of IEA data blames shortages for the first annual fall since the pandemic [3][1], with people worldwide using significantly less oil and gas [2]. A barrel nobody could buy and a barrel nobody wanted go into the same column, and the figures as reported do not separate the two. Calling this demand destruction asks more of the numbers than they can yet show.
The size of the fall also needs care. Compare the IEA's latest forecast with the 2020 average [5]: even in a year of decline, the market is 11 million barrels a day larger, or about 12% [1][2]. The pandemic drop was the steeper one [4]. The 102 million figure is a forecast [5], so the year being compared has not finished. The excerpt does not give the current decline in barrels or the base year it is measured from, so the size of the fall cannot be checked from this material.
There are a few ways this resolves. Supply could come back and consumption climb toward its old trend, in which case the decline was rationing. Consumption could instead recover only partway once fuel is available. The gap left behind would then be demand destruction in the strict sense, and it could be counted in barrels. Or the shortages last long enough for buyers to replace the equipment that burns the fuel. In that case rationing becomes lost demand the slow way, and the statistics take years to show it.
I think the first outcome has the better evidence today, because the only cause the analysis names is a shortage of supply [1]. The counter-case is duration. The analysis stresses that the shortages have gone on for so long that they are now cutting carbon output [1], and a long enough shortage is how rationing turns into habit. I am wrong if the first year of adequate supply still shows oil and gas use below where it stood before the shortages began.
What to watch
- The IEA's next revision to its 102 million barrels a day forecast: a cut while shortages persist would suggest forecasters see demand weakening as well as supply.
- Whether the Washington Post or the IEA publishes the current decline in barrels a day and the year it is measured from, so the fall can be sized.