Analysts Warn New Fuel-Economy Targets May Not Lower Oil Demand

Some analysts are warning that the Obama administration’s plan to raise automaker’s fleet-wide fuel economy standards to 54.5 miles per gallon by 2025 may never achieve its intended objective.

Energy Security Analysis Incorporated president Sarah Emerson applauds the administration’s boldness. “It’s a bold plan – it’s like ‘let’s go to the moon,” says Emerson. “But there’s a lot more to this that needs to be worked out than just picking a number. The number implies a huge increase in the number of electric, hybrid and diesel cars in the vehicle fleet.”

President Obama calls the new rules “the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil” and has predicted they will lower the country’s consumption of oil by 2.2 million barrels per day over the next 15 years.

Analysts, however, point out that that figure is less than 25 percent of the approximately 9 million barrels of oil imported by the U.S. each and every day.  It also does not take into account such factors as the rapidly growing U.S. population.

The United States currently accounts for over 20 percent of the global demand for crude oil.

With international prices for crude oil hovering above $115 per barrel, U.S. consumption has already begun to fall.

In May, demand fell to 18.363 million barrels per day. That was down 464,000 barrels per day, or 2.46 percent, from a year earlier according to the Department of Energy.

Citi Futures Perspective analyst Timothy Evans said thinks the new fuel economy standards could lead to “an annual trend” of a 2-3 percent decline in U.S. demand.

“I’m tempted,” said Evans, “to pencil in its start date as this year given the numbers we’re seeing, but really we should be looking at two to three years before the first standards are introduced in 2016. Manufacturers will be rolling these new vehicles out over time, not all in the same year.”

However, some analysts predict that the rapidly growing U.S. population could lead to higher demand if oil prices retreat. According to the U.S. Census Bureau, the population will increase by around 36.4 million people by 2025.

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