Fuel for Thought: Sorry Americans, but it’s time to have a conversation about oil demand

No one wants to hear this, but the exit from soaring oil prices anytime soon will have to come from a drop in demand, not an increase in supply.

That’s what RBC Capital Markets’ Helima Croft and a growing number of analysts argue, as oil prices hold well above $100/bbl as options for additional fresh supply dwindle and other supply risks loom on the horizon.

“Political cycles don’t make that kind of conversation easy, but it’s the conversation to have,” Croft said.

European leaders have started talking to citizens about this need to reduce their consumption, but American politicians have not yet addressed the subject. What holds them back?

“It’s the specter of Jimmy Carter,” Croft said during a June 28 webinar hosted by the Carnegie Endowment for International Peace.

Echoes of the 1970s

In what became known as his “malaise” speech, Carter urged Americans in July 1979 to accept a shared sacrifice of energy conservation to reduce dependence on foreign imports and slow inflation that is s took over the country as it does 43 years later.

Carter outlined a plan to reduce U.S. dependence on foreign oil, including through import quotas, developing domestic energy supply, financing solar power, and l obligation for public services to reduce their oil consumption. While the speech would have been well received, Carter’s dismissal from his cabinet two days later led to his political downfall and eventual crushing loss to Ronald Reagan the following year.

Policy advisers now know how difficult it would be to ask citizens to shelve their travel plans, especially after two years of trips and family vacations being canceled due to the pandemic.

That said, high gasoline prices could already be dampening demand from some U.S. drivers, as Energy Information Administration data showed on June 29 that consumption was about 5% below average over the past few months. last three weeks.

Total liquid fuel consumption in the United States has returned to pre-pandemic levels, but US demand for gasoline and jet fuel is still slightly lower than it was in the summer of 2019.

Chart: US liquid fuel demand returns to pre-pandemic levels

“Not asking too much”

Jason Bordoff, co-dean of Columbia University’s Climate School, and Meghan O’Sullivan, director of the Geopolitics of Energy Project at Harvard University’s Kennedy School, argued in a foreign policy column of June 29 that all recent efforts to increase fossil fuel production — “drilling and pumping, pushing refineries to the limit, building multi-billion dollar LNG facilities” — are appropriate but not sufficient to offset supply Russia and ensure safe and affordable fuel for consumers.

“Amid the focus on boosting renewable energy sources and fighting fossil fuels, the world has sadly lost sight of one of the most important energy facts: investments in efficiency and energy efficiency. conserving demand are often the cheapest and fastest ways to reduce the use of oil, gas, and coal – and to reduce the need to replace Russian supplies (not to mention carbon emissions)”, wrote Bordoff and O’Sullivan.

They said that “even if some immediate conservation measures require modest behavioral changes, such as adjusting the thermostat, it is no exaggeration to ask consumers in countries with the highest per capita energy consumption rates to use a little less when Ukrainians are paying the ultimate sacrifice with their lives.”

No quick fix

November’s midterm elections in the United States, which the Democrats look set to lose, are raising the political costs of a call for lower energy demand.

Still, Croft said executives should say a confluence of factors is making energy prices and inflation difficult to resolve, and falling demand is the price we must pay to maintain support values. to Ukraine and oppose Russia’s invasion of a sovereign nation.

“The more we focus on things like SPR or gas taxes, sometimes I think the American public believes there’s a quick lever to pull, like if only you could restart Keystone XL,” said Croft.

“This is not a situation that is going to be solved quickly by additional supply. This is a situation that, unfortunately, is going to be solved by demand as long as this war continues.”