Global Demand for oil is continuing to increase, leading experts to predict $100 + barrel prices over the next couple years. “This will last until capital spending catches up with new oil developments,” states John Hofmeister, former president of Shell.
Why is demand increasing the way that it is for this commodity? What is causing the prices to jump up?
One factor demand depends upon is the income of the people. The higher the income of the people, the higher their demand for goods.
So if we look at the average income now vs. a few months ago vs. a year ago, will we see a positive trend?
The answer is YES! Over the majority of 2017, the average US household income was $56,516. Then at the end of last year, December 2017, the average jumped to $58,829. Then again, in January of 2018, the average shot up to $59,055. This positive trend is consistent in other parts of the globe such as Australasia, Europe, Latin American Countries, and several Asian countries.
What does this have to do with oil?
When people make more money, they tend to travel more frequently and purchase more things, essentially increasing their buying power. The contents of a barrel of oil aren’t exclusively utilized for vehicles. Approximately 14.6 gallons out of every barrel of oil goes to Distillate Fuel Oil and Jet Fuel. These are used to move 18 wheel trucks and airplanes (two of the largest forms of transportation). So if people are buying and traveling more, then more items are being shipped and more people are flying.
So now you’re wondering, “Is average income predicted to increase over the next few years like oil prices are?”
One thing for certain is that Inflation is predicted to continue, which trend sets the average annual income to increase as well.
Another factor affecting demand is the number of consumers in the market. Purchasers of oil products vary from an individual at a pump to huge industries. As previously noted, not all oil goes into cars. Only 46% of oil goes into making gasoline, so where does the majority 54% go? We have to look at where it actually goes to determine who buys it, the consumer.
Plastics: Almost all plastics are made from petrochemicals, from your iPhone to that bottle of water. It is 4-5% of the total petroleum consumption.
Medicine: Most over the counter medications, homeopathic products, and vitamins are derived from benzene, a product of petroleum.
Synthetic Rubber: Thousands of products rely on rubber such as shoes, tires, wetsuits, breast implants, gloves
Cleaning Products: Cleaning Products need all those ingredients you can’t pronounce in the ingredient list, all of which are very poisonous.
Cosmetics: Makeup and shampoo that has oils, perfumes, waxes, and color are all produced with the help of petrochemicals.
Asphalt: There are over 11 million miles of paved road in the world. Asphalt aka bitumen is the glue that binds minerals together.
Everything today requires oil. Even electric cars require oil in the manufacturing process. Oil is also used to lubricate car’s moving parts, other than just filling the tank.
So is the demand for these items increasing too?
Plastics: Global demand for plastic is predicted to grow at an annual rate of 4% annually reaching 73.3 million tonnes, according to Smithers Rapra.
Medicine: Over the counter drugs market is predicted to hit $178bn by 2024- Global Newswire.
Synthetic Rubber: Market Watch expects the global synthetic rubber market to exceed $45 Billion US by 2023, growing more than 5% in the given period.
Cleaning Products: PR News Wire states that there is an increasing demand for the use of industrial and institutional cleaning chemicals and the cleaning service market is expected to garner $74,229 Million by 2022 growing at 6.2%.
Cosmetics: The cosmetics market is expected to grow close to 4% during the period 2018-2022 according to Business Wire London.
Asphalt: Global Market Insights, Inc, predicts that Asphalt Bitumen market size is set to surpass $110bn by 2024 with a growth percentage of over 4%.
Demand for these products is expected to increase over the next couple of years, which also means there will be more transportation of these goods. This validates the expectancy of oil demand increasing. Lets double check one more thing – Cars sold…
If more cars are being sold, then more gasoline is likely to be purchased.
Number of cars sold worldwide from 1990 -2018 (Statista)
1990-1999: 39.20 Million Units
2000-2014: 54.89 Million Units
2015: 72.61 Million Units
2016: 77.25 Million Units
2017: 79.02 Million Units
2018: 81.50 Million Units
After observing the positive trend of cars sold, we can assume that the production of vehicles increases simultaneously as well.
Countless factors play into increasing demand, but it’s clear to see that this is an opportune time to jump in and take advantage of the market standings for this commodity. One way to take advantage is to invest directly at the source. Alpha Seven Energy provides individuals the ability to purchase ownership in producing oil and gas wells and capitalize on oil and gas. Contact our team for more details!