“Price and
Income Responsiveness of World Oil Demand, by Product”
by Joyce M.
Dargay, Dermot Gately and Hillard G.
Huntington
December 2007
Abstract
Oil demand is estimated
using price decomposition terms to analyze the effects of price and income upon
world oil demand, disaggregated by product: residual oil (used primarily for
generating electricity) and other oil.
Equations are estimated for each of six groups of countries, using data
from 1971-2006. Most of the demand
reductions since 1973-74 were due to fuel-switching away from residual oil,
especially in the OECD. Demand for other
oil has been much less price-responsive, and has grown almost as rapidly as
income. Assuming constant real prices
and our estimated elasticities, we project slightly weaker near-term demand
growth than the International Energy Agency (IEA) and the U.S. Department of
Energy (DOE), but much stronger
long-term growth: 17% higher by 2030.