First signs of falling demand for oil

It takes time for people to change their oil consumption habits. The effects of high oil prices from early this year are starting to be noticeable.

By , Guest blogger

  • close
    In this May 5, 2011 photo, a motorist fills her car at a Mobil gas station in Pembroke Pines, Fla., where the price of regular gas was near $4 a gallon. Americans are switching to more fuel efficient cars and driving fewer miles, but purchases of gasoline are still gobbling up an increasing chunk of the nation’s pocketbook.
    View Caption

As I've written repeatedly in the past, the price elasticity of demand (and supply) increases as time passes. In the short run, people may not have a choice in changing driving patterns or changing from SUV:s to hybrids, but after a while that happens. And furthermore, the higher oil prices will generally with a few months time lag weaken most economies, reducing demand.

Also, physical constraints may prevent oil producers from immediately increasing production, but in the medium term some new oil may be released where spare capacity exists. And in the longer term, higher prices will increase total capacity and thus total supply.

We see now the first signs that the great oil price shock earlier this year caused by the war in Libya in combination with QE2, has started to reduce demand, something that in turn is helping to reduce the increase in oil prices.

Recommended: Could you pass a US citizenship test?

Add/view comments on this post.

--------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...