Demand Destruction: A Natural Cure For Peak Oil

“Demand destruction” is a term widely used in literature referencing peak oil hypothesis and the impact of rising oil and gasoline prices on consumption. Basically in lay terms, demand destruction is the reduction of demand for oil and oil derivatives. In other words at a certain price level for oil, or any other product for that matter, people will start parking cars, turning off air conditioners and cutting back on air travel. They will curtail their spending around everything affected by high oil prices and buy essentials.

Arjun Murti, an energy analyst with Goldman Sachs, recently stated that gas at the pumps in the United States may have to hit $5.75 per gallon before consumption cools off enough to take the heat off of oil prices.
Although, there is evidence North American consumers are being effected negatively. In his vies oil supply growth is being constrained and conversely global growth has gone on unabated. He also stated there was a distinct possibility the world could see $150 to $200 per barrel oil over the next six to 24 months.

On the supply side Mr. Murti stated there are no apparent issues as Saudi Arabia, Iraq, Iran, Venezuela, and Russia all have large recoverable oil supplies but aren’t on track to grow them significantly because there is no monetary reason to do so. The rationale from their perspective is that they don’t need incremental revenues by way of volume and they don’t need western capital to build infrastructure to build out more reserves. In other words they are happy with the present scenario in which they have never made more money.

New Brunswick Business Journal