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The Upcoming Surge In U.S. Oil Demand Explained In One Chart

Peter Tertzakian

Wow. It’s not often a chart can say so much about human behavior, economic theory, oil consumption and maybe even the future of energy all in one spreadsheet column.

For one thing, the data I show this week confirms the maxim that “size matters.” When it comes to buying a new vehicle in North America, the bigger-is-better sentiment has been growing over the past 30 years, and especially so in the past three.

The simple line graph in Figure 1 shows the percentage of people that walk into a car dealership in the United States, kick a few tires of various size, and then drive off with a new pick-up truck or SUV. That choice trumps opting for a more modest set of wheels on a smaller car. Canadian data reflects similar buying sentiments.

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Back in 2006, new car buyers began shifting to smaller vehicles, because the price of oil (hence gasoline) was rising quickly. Then came the Financial Crisis, which further amplified frugality. On the flip side, it’s quite remarkable what a recovering economy and cheap oil will do to consumer choice of mobility.

Never in the history of the automobile has the shift to progressively bigger vehicles been as aggressive as the last three. Back in 2013 the split was 50/50 – an average new car buyer could swing either way between big or small. Three years later almost two-thirds now choose a pickup truck or SUV.

Related: The Oil Market Is At A Major Turning Point

From the perspective of energy demand, size matters in vehicle choice. That’s because fuel economy is dominantly a function of weight followed by aerodynamics. Larger vehicles mean more metal to haul around and box-like profiles means more drag. On average an SUV weighs about 1,000 pounds more than a car; a pickup truck 1,500 pounds greater.

Fuel economy differences between cars and light trucks are fairly stark. On average, a pickup truck will get 20 mpg (11.7 L/100km) versus 30 mpg (7.8 L/100km) for a regular car.

It’s true that technology and material weight reduction has improved fuel economy of all vehicle classes over time. But an important principle of energy economics is validated by the consumer data: Many gains realized through fuel economy and fuel prices are quickly eroded by people buying bigger vehicles and driving more. In other words, people eat their efficiency gains by consuming more.

This is nothing new; Figure 2 shows a 40+ year view of the expanded data in Figure 1. The same pattern happened back in the late 1970s during and after the oil price shocks. High gasoline prices put the brakes on big cars and people shifted their tastes to smaller vehicles like the Ford Pinto. But it was back to bigger-is-better by 1982. And like today fuel consumption numbers began to grow again.

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Bigger, energy obese vehicles are back in vogue in a big way. And it’s not just in the Western world. The Lincoln Navigator is being resurrected in China feeding off the base human instinct that size matters. Around the world gasoline consumption is growing at a rate that is likely to set new records this summer; by association the global use of oil is barreling toward a staggering 100 million barrels every day.

The propensity for consumers to buy oversized petroleum powered vehicles highlights an oversized inconsistency in near-term arguments about “the end of oil.” Any influences acting to make oil cheaper—either on the supply side or demand side—is serving to only strengthen the pervasiveness and dominance of the product.

By Peter Tertzakian for Oilprice.com

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