Oil Consumption Re-Balance To Cause More Financial Earthquakes

Includes: FXE, FXI, UUP
by: Jason Tillberg

The more I crunch the numbers on oil consumption per capita around the world, the more easier it is becoming to see the sheer magnitude of the wealth transfer taking place from West to East.

This trend seems to have begun in earnest beginning in 2007. The shift brought about a huge financial earthquake in 2008 and lots of financial aftershocks since then.

As these trends in this global wealth shift continue, pressure is building up once again for another financial earthquake I believe.

This chart shows the global oil consumption per capita from 1980 - 2012:

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Sources for all Oil, GDP and Population: EIA, World Bank

The world's oil consumption per capita has been stuck around 4.6 barrels per year since 1982 as production has only grown inline with population growth.

Wherein lies the good news is that the global GDP per capita has risen as we've been able to get more productivity out of every barrel of oil and at the same time, bring on new forms of energy outside of oil like solar panels and electric cars to boost our overall output per capita.

Global GDP per capita per barrel of oil consumed Constant 2005$ US:

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To be clear, in 1980, using constant 2005 US$, world GDP per capita was $5,023 and world per capita oil consumption was 5.19 barrels. This made GDP per capita per barrel of oil consumed $968.

By 2012, world GDP per capita hit a record $7,612 while world per capita oil consumption was 4.60 barrels. This made GDP per capita per barrel of oil consumed $1,653.

The more oil that is consumed in a nation per capita, the greater likelihood its GPD per capita will be higher than those nations that consume less oil per capita. Per the chart above, every barrel of oil consumed is worth on average $1,653 in 2005 US$ of global GDP as of 2012.

World oil consumption share in 1982 looked like this:

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North America was the world's biggest energy consumer while Asian and Oceania was the smallest in 1982.

Fast forward to 2012 and the pie is sliced up a bit differently:

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Asia and Oceania are now the largest energy consumers in the world as their share today is even larger than North America's was in 1982.

When we appreciate that global oil production per capita has been stuck in the 4.6 barrels range since 1982, the increase in Asia and Oceania's share of global oil consumption of 15% is offset by a decrease from North America of about 5%, a decrease in Europe of nearly 8% and the other 2% from the rest of the world.

This trend is picking up steam as we can tell by individual countries oil consumption per capita.

Here is U.S. oil consumption per capita from 1956 - 2012:

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U.S. oil consumption per capita held steady from 1982 up until about 2007 in the 25-26 barrels per capita range while world consumption averaged 4.6 barrels per capita. Consumption was 25.98 barrels per capita in 2007 and then dropped to 24.33 in 2008. It was 22.23 in 2012 and the trend is down.

China, with a population of 1.35 billion as of 2012, has been the biggest driver of demand in the Asia and Oceania region of the world.

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Right at the point of the fall of communism in 1989, we can see the increase in oil consumption in China begin to take place.

China's car demand alone paves the way for future oil demand in China.

It's the nations of Europe, particularly Southern Europe including Italy Spain and Greece for example, that have seen both considerable declines in real GDP per capita and oil consumption per capita.


Here is a chart of Italy's GDP per capita in 2005$ US that shows the declines that have occurred since peaking in 2007:

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Italy has seen oil consumption per capital falling since about 2002:

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Spain's GDP per capita is also falling along with per capita consumption of oil:

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GDP per capita in Greece has fallen just like Italy's and Spain's:

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So has oil consumption per capita:

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An economy is the production and consumption of a given area, region or country. Having the energy of a barrel of oil, which in one estimate is equal to 23,200 hours of human energy output, can greatly increase a nation's production and consumption.

As a nation reduces its oil consumption per capita, it takes away a tremendous amount of energy that could have been used to produce and distribute goods and services for consumption.

At the same time, as Asia rises and consumes a greater share of the oil pie, Western nations capacity to grow their economies in real terms and most important, continue to service their debts, will remain big challenges.

When we see the European youth unemployment charts, not having enough oil may well be part of the problem as to why so many are unemployed as it takes energy to do work and that energy went to Asia instead of Europe.

European Youth Unemployment Rate

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It's only a matter of time before the stresses of this global wealth shift cause another financial earthquake like we saw in 2008.

The fault lines are most likely in Europe and thus, European sovereign debt and the Euro currency (NYSEARCA:FXE) I think should be avoided. The U.S. dollar (NYSEARCA:UUP) should hold up well as capital flees Europe to escape potential bank bail-ins that could occur in Europe at any point from now.

Longer term, I'm bullish on Asia, China (NYSEARCA:FXI) especially.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.