Price and Income Responsiveness of World Oil Demand, by Product

Oil demand is estimated using price decomposition terms to analyze the effects of price and income upon world oil demand, disaggregated by product: residual oil (used primarily for generating electricity) and other oil. Equations are estimated for each of six groups of countries, using data from 1971-2006. Most of the demand reductions since 1973-74 were due to fuel-switching away from residual oil, especially in the OECD. Demand for other oil has been much less price-responsive, and has grown almost as rapidly as income. Assuming constant real prices and our estimated elasticities, we project slightly weaker near-term demand growth than the