In my previous posts here and here, I have recommended investing in oil with a long term perspective. One of the main reasons for my recommendation was the impressive growth in the demand for crude oil from developing countries like, China, India, South Korea, Brazil and others. But in order to find out if now is the time to invest in oil, it is most important to analyze the fundamental parameters of this important resource, production, consumption and reserves regarding the U.S, the world biggest economy.
The U.S. population is about 4.5% of the world population, but according to the BP Statistical Review of World Energy 2012, released on June 26, 2012, the U.S. consumed 21.4% of the world total oil consumption in 2011. The U.S. consumed 18.835 million barrels/day in 2011, about twice more than the second biggest consumer China which consumed 9.758 million barrels/day in the same year. But while the world's oil consumption increased 0.7% in 2011, The U.S. consumption decreased by 1.9%, in contrast to the high Chinese oil consumption growth which was 5.5% in 2011.
U.S. Oil Production
Total U.S. oil production declined from 9.01 million barrels per day in 1965 to 7.84 million barrels per day in 2011, Compound Annual Growth Rate - CAGR : -0.30% This production data includes crude oil, shale oil, oil sands and NGLs, and excludes liquid fuels from other sources, such as biomass and coal derivatives.
Data: BP Statistical Review of World Energy 2012
U.S. Oil Consumption
Total U.S. oil consumption rose from 11.52 million barrels per day in 1965 to 18.83 million barrels per day in 2011, Compound Annual Growth Rate - CAGR : 1.07%. This consumption data includes inland demand plus international aviation and marine bunkers and refinery fuel and loss. Consumption of fuel ethanol and biodiesel is also included.
We can see that in the long term the U.S. oil consumption is rising at a much higher rate than its production. The difference between consumption and production, which must be fulfilled by import, rose from 2.51 million barrels per day in 1965 to 10.99 million barrels per day in 2011, Compound Annual Growth Rate - CAGR : 3.26%.
Data: BP Statistical Review of World Energy 2012
Data: BP Statistical Review of World Energy 2012
U.S. Proved Oil Reserves
Total U.S. proved oil reserves declined from 36.53 billion barrels in 1980 to 30.87 billion barrels in 2011, Compound Annual Growth Rate - CAGR : -0.54%. The U.S. proved reserves ranked 11th in the world and are equivalent to 4.5 years of U.S. consumption in 2011 rate.
Data: BP Statistical Review of World Energy 2012
U.S Oil Demand in 2012
According to the International Energy Agency, Oil Market Report, released on June 13, 2012:
Revised US demand data for March averaged 18.2 mb/d, a y‐o‐y decline of 5.6%, with consumption lower across all of the main product categories. The sharpest contractions were seen in residual fuel oil, and naphtha, with reductions in excess of 20%. Relatively speaking, motor gasoline fell by a lesser degree, with demand down 1.3% to 8.6 mb/d, as the pace of the decline showed signs of bottoming‐out following the falls of the past four years.
For the year as a whole, a US demand contraction of around 165 kb/d (‐0.9%) to 18.7 mb/d is forecast, as the predicted decline rate falls throughout the year, supported by further price appeasement and a continuation of the gentle pace of economic recovery.
Conclusion
U.S oil demand pace of the decline is showing signs of bottoming‐out following the falls of the past four years, and considering that consumption of other developing countries like, China, India, South Korea, Brazil and others, is growing at a very high rate, all that could cause shortages and a higher price of oil.
Some Liquid ETFS for Oil:
United States Oil Fund LP (USO)
ProShares Ultra DJ-AIG Crude Oil ETF (UCO)
iPath S&P GSCI Crude Oil Total Return (OIL)
PowerShares DB Oil Fund (DBO)
United States Brent Oil (BNO)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
