What drives crude oil prices: Demand OECD

The Organization of Economic Cooperation and Development (OECD) includes the United States, most of Europe, and other developed countries. In 2021, OECD countries accounted for 46% of global oil consumption. Although still significant, their oil use is less than that of non-OECD countries, and their consumption growth is slow or even declining. Oil consumption in OECD countries peaked in 2005; it has risen by over 50% in non-OECD countries since then.

However, OECD countries, despite their relatively lower consumption growth compared to non-OECD countries, still account for a substantial portion of global oil demand. A decrease in demand within these economies –stemming from things like economic recession, efficiency improvements, or policy changes– can lead to a surplus of crude oil on the market, putting downward pressure on prices. Conversely, unexpected increases in OECD demand can tighten the global crude oil market and push oil prices higher.

Data source: U.S. Energy Information Administration, Short-Term Energy Outlook

The way each OECD country's economy is set up affects how oil prices, economic growth, and oil use are related. Developed countries tend to have more cars per person. Because of this, transportation usually makes up a larger part of total oil use in OECD countries than in non-OECD countries. Economic factors and policies that affect how people and goods are transported have a big impact on total oil use in these countries. Many OECD countries have higher taxes on gasoline, have policies to make new cars more fuel-efficient, and encourage the use of biofuels. This tends to slow the growth in oil use, even when the economy is strong. Additionally, OECD countries tend to have larger service sectors compared to manufacturing. As a result, strong economic growth in these countries might not increase oil use as much as it would in non-OECD countries.

What people expect to happen to oil prices in the future also affects their decisions about transportation and buying cars. If prices are expected to stay high or go up, more people might decide to buy more fuel-efficient cars or use public transportation. These kinds of decisions help to reduce future oil demand and would tend to keep expected price increases in check.

Expectations about future oil prices extends to other types of OECD petroleum consumption beyond transportation choices. For example, if future oil prices are expected to be high, consumers may switch from using heating oil for home heating to natural gas or electricity, and firms may make capital investments to their industrial process to move away from petroleum products to other energy sources.