Sunday, June 16, 2024

Demand & quantity demanded: What do they mean? The case of the oil market

See The World Will Be Swimming in Excess Oil by End of This Decade, IEA Says: Energy watchdog forecasts spare pumping capacity to rise as demand growth wanes and supplies surge. Excerpts:

"Oil-demand growth is set to peak by 2029 and start to contract the next year, reaching 105.4 million barrels a day in 2030 as the rollout of clean-energy technologies accelerates, according to the Paris-based organization. Meanwhile, oil-production capacity is set to increase to nearly 113.8 million barrels a day, driven by producers in the U.S. and the Americas."

Let's look at "oil demand growth." Demand is the relationship that price and quantity demanded have with each other. Think the downward sloping demand line. And quantity demanded is the amount consumers are willing to buy at a given price.

If we take the article literally, it means that every day consumers will be willing to buy 105.4 million more barrels than they did the day before. In a week, it would be over 700 million.

Why? Because an increase in demand means that consumers are willing to buy more at each and every price than they did the day before. When the article says "demand growth" that means demand shifting to the right.

The article probably meant that the total number of barrels of oil bought would be 105.4 million in 2030. But then that is quantity demanded and not demand.

Late the article says

"Despite the slowdown, global oil demand in 2030 is still forecast to rise by 3.2 million barrels a day from 2023"

Earlier it said oil growth would be 105.4 million per day. Now it says 3.2 million. A contradiction. Also, it should say that quantity demanded would be 3.2 million higher in 2030 than 2023, not demand.

"In advanced economies, demand is forecast to fall from around 45.7 million barrels per day in 2023 to 42.7 million barrels per day in 2030. Excluding the pandemic, the last time that oil demand was that low was in 1991, according to the IEA."

Again, they use the word demand when they should use quantity demanded.

"In the short term, the agency cut its forecast for global oil-demand growth to 960,000 barrels a day this year from previous estimates of 1.1 million barrels a day"

Same problem. Do they mean that at each and every price consumers will be willing to buy 960,000 more barrels? I don't think so.

No comments: