Cutting off the demand for oil would hurt Russia and ease the supply crisis

If the reduction is achieved, it will represent about 5.5% of the agency’s forecast for oil demand in OECD countries this year. More could be reduced if measures are adopted by the least developed countries as well. Many of the 10 points are things that have been done before, either during the oil price crises of the 1970s or more recently during the COVID-19 pandemic. There is good evidence that it works.

The biggest impact can come from sharing more trips and reducing fuel use through practices such as ensuring the correct tire pressure and increasing the air conditioning temperature. The average vehicle occupancy is currently around 1.5 people per vehicle. The International Energy Agency calculates that an increase of about 50% in 1 in 10 flights, along with using less fuel, could save about 470,000 barrels per day of oil in the short term. Reducing speed limits by 10 kilometers per hour (about 6 miles per hour) on highways would save another 430,000 barrels per day.

Reduced speed limits were introduced by the United States and many European countries during the 1973 oil price crisis, and variable limits now exist on many highways to reduce congestion or air pollution. Arranging ride-sharing is much easier now than it was 50 years ago, with a host of mobile apps already in use.

But ongoing concerns about the Covid-19 pandemic may undermine people’s desire to share cars and even use public transportation. Passenger numbers on metro networks in most large cities are still well below pre-pandemic levels, and governments are looking to reduce their financial support.

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The International Energy Agency says that more fuel-efficient use of trucks for long-distance cargo transportation and short-term deliveries can achieve savings of up to 320,000 barrels per day. But while this may seem obvious amid rising fuel prices, the drawback is that, unlike private cars, freight drivers don’t feel the immediate annoyance of higher diesel prices, and therefore don’t share the same incentive with you to change their driving habits.

Working from home and avoiding air travel for work appear to be promising ideas for reducing fuel use. But the scope for working from home is much less than it was before the pandemic, with many companies already allowing employees to work remotely for at least part of the week. And if fewer business travelers mean half-empty planes rather than fewer flights, the effect will be limited.

The IEA is not making these proposals just to cut off the flow of money to the Kremlin. It is also very concerned about the impending oil supply crisis. Its latest market outlook, published on Wednesday, warned of the potential for the biggest supply disruption in three decades, with at least 3 million barrels per day of Russian exports likely to be lost as soon as next week.

So, if the IEA is right about the supply shock, the reduction in demand will have a critical role in balancing the oil markets. But the extent to which its proposed measures will be adopted is far from certain. As distasteful as the Russian invasion of Ukraine is, it is not clear whether people in Europe and the United States feel that changing their oil consumption habits is a necessary, effective, or appropriate response.

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Calls for action to combat rising fuel prices center around governments cutting taxes or subsidizing domestic oil production. There are few, if any, calls for mandatory fuel-saving measures.

After the current crisis, oil demand must be addressed if the world is to meet its long-term carbon reduction goals. An additional incentive to deprive President Vladimir Putin’s war machine of foreign funding through oil sales may be what is needed to start the process. If that happens, the watchdog’s path to net zero might look less like the road to La La Land.

This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

Julian Lee is an oil strategist at Bloomberg. Previously, he worked as a Senior Analyst at the Center for Global Energy Studies.

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