Whether you like it or not, oil demand is surging in the developing world and this trend is likely to remain intact.  Despite the economic problems in much of the developed world, the developing nations are burning more and more oil for the following reasons:

• Heavy government subsidies

• Extremely depressed per-capita consumption levels

• Expanding middle-class

• Growth in automobile-ownership

• Robust industrial activity and rising domestic consumption

• Massive public-sector spending on infrastructure (railways and roadways)

It is our contention that none of the above factors are likely to disappear anytime soon.  Moreover, when you take into account the size of the population in the developing world, it becomes clear that if the supply permits, worldwide demand for energy will continue to rise for decades.

If you are still sceptical and have any doubts, Figure 2 should put them to rest.  As you can see, the combined oil-consumption in China and India is at a record-high.  Today, these nations’ combined oil-consumption comes in at roughly 12 million barrels per day (14% of global usage) and what is really astonishing is the fact that demand has doubled over the past decade! 

Finally, it is worth noting that over 2.3 billion people reside in these two Asian nations and most of them still do not own automobiles. So, as these people climb up the prosperity ladder, demand for energy in these two countries will continue to appreciate.

Bearing in mind these facts, one can safely state that demand for oil will continue to rise in China, India and other parts of the developing world. More importantly, given the sheer number of people in Asia, Latin America and the Middle-East, the demand growth from these developing countries will most probably offset the declining demand for oil in the developed world.

In summary, apart from short-term setbacks during recessions, global demand for oil will continue to rise.  On the other side of the ledger, the ongoing depletion, lack of new discoveries and cutbacks in capital spending will put a firm lid on oil supply.  Last but not least, when you take into account the ongoing debasement of paper money, it becomes obvious that the price of crude is set to rise, perhaps remorselessly.