Keep It Simple, Stupid...Why Oil & Commodity Demand Is Set To Fall Indefinitely

Tyler Durden's picture

Submitted by Chris Hamilton via Econimica blog,

Following James Carville's sage advice, I will attempt to explain to president-elect Trump, Fed-head Yellen, and the average American why global oil, commodity, and consumer demand is set to collapse using the Carvillian principle..."keep it simple stupid".

 

The combined 35 OECD wealthy nations (list HERE) plus China, Russia, and Brazil represent 70% of global oil consumption while they represent about 40% of global population (chart below).  In comparison, Africa and India (combined) make up 8% of oil consumption despite being 33% of global population (& nearly 100% of all present and future net population growth).

The chart below shows the EIA (Energy Information Administration) historic and estimated global oil consumption by OECD vs. China+Russia+Brazil vs. India+Africa vs. RoW.

From 2015 to 2040, the EIA anticipates global oil consumption to increase by over 27 million barrels a day.  Of that, the OECD to represent 2% of the growth, China+Russia+Brazil 25%, India+Africa 27%, and the RoW 46%.

I'd like to focus (below) on the population with all the income, savings, and access to credit...the combined OECD, China, Russia, Brazil population.  Specifically, the chart below shows global oil consumption growth from 1985 through 2015 (per five year periods) vs. the change in the combined OECD, China, Russia, Brazil 15-64yr/old core population.  The correlation in the growth of oil consumption to the change in global core population has been very strong...however, once core population growth began decelerating in the '05-'10 period, the correlation has broken down.

The chart below is the UN estimate from 2015 through 2040 for population growth vs. the EIA estimate for global oil consumption growth.  There is simply no relation of the below estimations to the previous period?!?

And below, the full series.  The shrinking population with all the income, savings, and access to credit plus driving technological innovation further reducing demand for oil.  But simple minded central bankers have determined that this is a "transitory" issue and that lower interest rates and the resultant higher debt and leverage will get us through?!?

I have previously shown that nearly all present and future population growth will take place in Africa while the rest of the world simply gets older (HERE).  A fast growing poor sub-Saharan African population absent robust global import markets is sadly set to remain poor.

Of course, you could run the same population projections against nearly all commodities or general consumer growth demand and see the central bankers and politicians are building a bridge to nowhere.  Alas, none of this matters so long as "markets" are "coaxed" to new all-time highs and I'm very wrong that any of this matters until I'm (sadly) very right.

And a final attempt to KISS...core population growth by region vs. oil consumption growth.

and then this (below)...the population figures aren't estimates as this population is already born and will simply move into the working age population...now, the oil estimates, seemingly pure fiction.

Since '03, China has driven global oil and commodity demand with a moonshot of credit vs. a decelerating core population to build infrastructure and entire cities for a population that is never coming...

Finally, context why a combined India / Africa will never replace the credit supernova that was China (below).

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Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Nov 24, 2016 2:15 PM

Peak Global Dipshitism

Nemontel's picture

The incoming political changes in the west will destroy all prognosis. Our central banker overlords don't see whats coming.

http://www.truthjustice.net/hbd/ethnic-diversity-and-social-cohesion/

MalteseFalcon's picture

Your article makes this point: "Ethnic Diversity Kills Social Cohesion".

This is what our (((central bank overlords))) and their (((social engineers))) want.

(((They))) have spent the last 100 years trying to achieve this goal.

As a distinct minority, (((they))) feel safer when society is at odds with itself.

For an example, see the Austro-Hungarian empire.

rejected's picture

If they don't raise gas prices soon you won't be able to get to work for all the traffic. Everybody is now "on the road". Can't go a 1/4 mile without passing a car lot selling all those leased vehicles coming back. How they're keeping the prices up is a mystery to me unless they're crushing them or filling up the Grand Canyon.

Oracle of Kypseli's picture

Exporting good used cars to 3rd world countries is lucrative business. We sold two 4WD SUV's to northern Russia instead of trading them in. The trader paid us in cash and he shipped them there. It was 25% more than the new car dealer offered us.  

Abitcoinbrain's picture

Any asset subject to money creation via Lending will have a a huge appreciation over time cause your not buying the car for its value your buying it cause of the lending!

The cars become the fuel needed to create car loans! 

Abitcoinbrain's picture

Any asset subject to money creation via Lending will have a a huge appreciation over time cause your not buying the car for its value your buying it cause of the lending!

The cars become the fuel needed to create car loans! 

jmack's picture

    I would not trust anyone's analysis, who tries to assign the KISS principle to James Carville.  It indicates a level of ignorance and/or partisanship that is detrimental to objective data analysis.

City_Of_Champyinz's picture

Seriously, it was in no way coined by James Carville, blowhard douche extraordinaire.  You cannot argue with the population figures though in any way.  The less people that are around, the less they will consume of everything...

Calculus99's picture

Good article, not sure the charts are simple though!

bada boom's picture

Maybe it's me, but those charts look like crap.  Too much visual noise. Please clean them up. KISS.

billhicks's picture

This guy knows demographics check his blog

Quinvarius's picture

The us has been in a depression for 8 years.  We don't need anyone else for a commodity boom.  All we need is for Obama to go away.

Be_Optimistic's picture

Hire someone smarter to do the graphs. Makes me question the quality of the analysis. 

Boris Badenov's picture

The key to the charts is Color Coded. Chris Hamilton's analysis is superb.

jpintx's picture

Sounds like the inverse of Peak Oil, and probably just as accurate.....

Seer's picture

It was Peak Oil PRODUCTION.

I coined the term "economies of scale in reverse."  At some point the whiplash of a loss of economies of scale is going to pretty much take us out (and at that point a LOT of production will, if not already, collapse).

ilovetexas's picture

Keep it simple? How simple? Rediculous.

refill6times's picture

Chart porn for sure.

(eyes glaze over)

Twain mentioned something about lies...

Bear's picture

KISS ... People that have nothing will multiply like rabbits while people that spend money will stop reproducing

RealistDuJour's picture

Sigh.  In this guy's KISS argument, he forgot the KISS.  No mention of Trump's Iran "re-negotiation".  But he's got some pretty shmancy charts!

Privyet_Jet's picture

Clickbait, Doom, with a side of supersized ShartCharts...

 

What a load of shit

mosfet's picture

You might as well also say, "Keep It Simple, Stupid...Why Gold & Silver Demand Is Set To Fall Indefinitely".

Granted I do feel that PM's have a dual commodity/safehaven status while Oil is only a commodity but one is heavily suppressed and rigged by the Comex/LBMA while the other has the full support and upward pressure by both Western and MidEast governments.  So all things considered, both sectors are driven by Dollar strength & weakness today.  A big difference though is that OPEC is about to freeze & cut output in less than a week.  For all of those who keep claiming that Oil price is determined only by supply & demand fundementals I have 2 considerations.

-The identical supply & demand fundementals were in play when Oil was $110 bbl, so what's your reasoning that it won't return back to that level as OPEC freezes and begins cutting over the next several meetings?

-And if supply & demand are all that matter for Oil then why isn't it all that matters for PMs as well?  Can you honestly ignore the rigging in COMEX/LMBA markets in PM's while at the same time claim that only the fundementals apply to Oil?

MalteseFalcon's picture

You are correct, it isn't about supply and demand for any basic commodity or gold.

Seer's picture

I've never saw it fit to forecast oil prices.

I could offer one reason why $110 bbl wouldn't come back, and that would be that there's no more sucker plays left in oil.  All the folks who were there to be HAD already got HAD.  And as this article suggests, decreased consumption due to demographics IS going to happen.  Ans as I mentioned above (somewhere) "economies of scale in reverse" is going to hammer at margins.  Flipping oil contracts, which is the only way I'm seeing prices being pushed back up, has a very low probability of becoming attractive.  Perhaps Trump will help bubble up the shale plays (again), but bubbles seem to need eclipsed previous bubbles in order to really provide any real movement: I'm not seeing it happening here.  BUT...

"Price" is dependent upon a currency.  The USD may take a huge dump.  In this case a big price jump could very well happen: a problem here is that it would drastically reduce demand (to foreign producers), which would tend to force prices down.  The major producers are also vying for market capture: that's what's been happening for some time: watch how Russia does NOT comply with OPEC's request for it to also reduce production.

Only thing safe that I think that could be said is that it's highly unlikely that we'll see another significant bubbling up of the oil sector.

katagorikal's picture

If all the tanks and tankers are full, it doesn't matter what OPEC say, or if they fail to agree, or if the price is manipulated by some paper oil derivative. Unless they want big black puddles, they have to slow production to match downstream demand. But there will be a glut of stored supply for quite a while, so even if they cut below the consumption rate, it will take a long time for restriction in supply to raise prices substantially.

Production will naturally fall anyway, because of the lack of investment during the price slump. Conventional fields have huge inertia through the E&P capex cycle - again, there's nothing talking can do to change that reality. Shale is the swing producer and it can change production levels quite quickly in response to wellhead prices.

The only way prices can rise substantially in the short term of a year or two, is geopolitical - especially widening of civil strife and proxy wars into the Gulf states. My prediction is that Oman is most at risk, when the Sultan dies, but it is a relatively small producer (also see my comment about KSA above).

NobodyNowhere's picture

1) First summarize the basic findings and the cause-effect relationships in PLAIN, CONCISE ENGLISH.  

2) Then present data and proofs

Seems like useful information but reading it is like code breaking.

MrSteve's picture

I see now that articles on ZH promising simplicity upfront are joining the three greatest lies joke: your check is in the mail, I'll respect you in the morning, etc, etc.

mkkby's picture

The author calls this mess KISS?   Garbled communication often means a poorly thought out analysis.  Probably wrong.

Stormtrooper's picture

Why can't the African central banks print up a gazillion units of funny money like the Chinese did and then go on a wild infrastructure building spree to create lots of fake growth thus creating commodity booms worldwide?

ShakenNotStirred's picture

There is no need for that.

They are already receiving tens of billions of fiat dollars, enough to keep the bullets flying.

All they have to do is to keep breeding like flies, so Europe becomes part of Africa.

katagorikal's picture

In principle they could and they should, but there are two problems:

  • Politics, corruption, rule of law, civil society, governance, ...
  • Geography, climate, water, vegetation, disease, ...

India stands a better chance of breaking out next.

LawsofPhysics's picture

LOL!!!

Are 7+ billion people going to lower their standards of living?

NO!!

Plenty of demand.

Ham-bone's picture

LOP - you have been on here for years and haven't learned a thing.

Lost in translation's picture

Been waiting for SA monarchy to fall, House of Sa'ud to get publicly beheaded.

Will I have to wait much longer?

katagorikal's picture

I was trying to think why the US supports KSA now that US+Canada+Mexico production is so high, and most Saudi production goes east. I think it comes down to long term security of supply, as many shale plays have a short productive life. So I conclude the fate of KSA will depend on the outcome in Venezuela: if the US can secure access to those reserves, then all geopolitical bets are off in the Middle East.

Lost in translation's picture

As Mrs. Lost and I struggled to make our way home from the rifle range on Tuesday, and a 50-minute trip morphed into almost 3 hours in L.A. area, pre-Thanksgiving traffic, I remarked, "oh, how I yearn for $5 per gallon for gas. It would get all of the Escalades and Suburbans off this highway in a hurry."

Sorry fellow ZHers, for wishing for bad things. I'm weak...

zvzzt's picture

"....oh, how I yearn for $5 per gallon for gas."

 

Those prices are a EU's wet dream.... Doing around 7.40 per gallon here now (not taking into account currencies of course). 

wisehiney's picture

No kidding. 

I am making lot's of my own gas today. 

hedgiex's picture

This is sound fundamental analysis that forgets that a parallel paper markets exist that do no spin to fundamentals. Even in the real economy, benefits to the 99% from the collapse in oil and commodities are creamed by the 1%. The matrix is meant for you to be permanently indebted to consume even necessities.

zippy_uk's picture

As India / Africa and develop, most of their new power generation and energy use is going to be solar, wind and nuclear and natural gas/fracking so this analysis is sound.

If I were S.A. I would pump and sell be for the stone age, er, I mean oil age ends. People think the oil age will drift on and slowley decline for decades but I beg to differ. Once there is a technology/economic tipping point for alternatives (getting closer) it will go with a bang as technology improved exponentially and legislators sieze the opportunity to legislate OIL and COAL out of existence.

New growth economies will skip the oil stage and move to the next step especially as costs fall. Demand has no play here.

EBT excepted's picture

jus' one little prollem, bruthah, evah thang you touchin' or seein' right now is made out da oil...