Peak Demand?

Everyone talks mercilessly about Peak Oil, but is it time to introduce the concept of Peak Demand? At least in the United States? The Federal Highway Administration (FHWA), a part of United States Department of Transportation (DOT) released its monthly "Traffic Volume Trends" report last Friday.

The report showed that estimated vehicle miles traveled (VMT) on all U.S. public roads for March 2008 fell 4.3 percent as compared with March 2007 travel. The report also said it was the first time March travel on public roads fell since 1979.

The 11 billion mile drop in March 2008 compared to March 2007 was the sharpest yearly drop for any month in FHWA history. This report was first issued in 1942, so there is 66 years of data.

The negative demand trends should continue in April and May since gasoline prices have moved up sharply from March.

Predictably the market ignored the report, and no doubt oil bulls spent all weekend mining the data for something to support the bull case.

The perfect storm seems to be brewing for Oil demand domestically right now. The main use of Oil in the United States is for transport, and we are starting to see the effects of high gasoline prices on demand as people drive less. If that wasn't bad enough, ethanol production is starting to take market share from gasoline, leading to even less demand for oil.

We put forth our opinion on the fundamentals for oil in our previous post on May 12.

We still maintain that fundamentals don't support current prices for oil. Emerging economies don't matter. What matters is world wide supply and demand for the commodity, and as we stated earlier, a 5% drop in demand in the United States would translate to a decline in demand twice China's oil consumption growth last year.

Read the Press Release.