THE IMPACT OF HIGHER ENERGY PRICES ON DEMAND

摘要

Strong demand for energy, driven by exceptionally fast economic growth, has helped to drive up oil and other energy prices since 1999, but there are signs that higher prices are now beginning to curb demand growth. Our analysis suggests that there has been no sudden shift in the underlying relationship between energy demand and price. Income remains the primary driver of demand for oil, gas, coal and electricity - demand which has continued to grow strongly, with incomes, in most regions. Prices still affect demand, albeit proportionately less than income and in a more gradual fashion. As a result, the impact of recent higher prices on demand has been partly disguised by the impact of the surge in economic growth. All the same, oil demand has become progressively less sensitive to crude oil prices and this trend is set to continue. This is because consumption is increasingly concentrated in transport, where demand is least price-elastic. The implications of this trend are significant. A decline in the crude oil price elasticity of oil demand will mean that prices will need to fluctuate more than in the past in response to short-term shifts in demand and supply - unless more flexibility emerges on the supply side to counter the growing rigidity of oil demand.