Slightly dated but still very relevant article by Alan Reynolds
at CATO that explains where Oil consumption actually goes. The key point being made in by Alan in 2005 was don’t look at vehicular consumption of refined products, look at industrial production and usage driven by manufacturing, heating, farming and logistics. Alan also goes ahead and addresses the China factor with clarity. Look at incremental demand and projected industrial and economic growth before you startFive years later his views are what we need to understand to project oil demand for 2010 and 2011.
“We import nearly 58 percent of all petroleum, yet only 45 percent of each barrel is used to produce gasoline, and a significant portion of that gasoline is used in delivery vans and taxis. Commuter and leisure driving accounts for little more than 40 percent of the oil we consume — far less than the amount we import. The rest of each barrel of crude is used for heating oil and diesel fuel for trucks, busses, farm machinery and ships (23 percent), petrochemicals (17 percent), jet fuel (9 percent), asphalt (4 percent) and propane (4 percent).
U.S. industries use petroleum to produce the synthetic fiber used in textile mills making carpeting and fabric from polyester and nylon. U.S. tire plants use petroleum to make synthetic rubber. Other U.S. industries use petroleum to produce plastic, drugs, detergent, deodorant, fertilizer, pesticides, paint, eyeglasses, heart valves, crayons, bubble gum and Vaseline.”
On China Factor and Oil Prices
“Just as oil market pundits typically ignore the 60 percent of petroleum not going into passenger cars, they likewise ignores the 60 percent of incremental oil demand not coming from China and the United States.”