Petroleum Oil Consumption in Major Countries of the World: A Panel Data Analysis

Abstract

This article examines the impact of various factors, such as gross domestic product, population, and oil prices in a country on demand for oil. The study was conducted by applying a panel data analysis technique on the annual data from 1970 to 2008, of the USA, Japan, China, and India. The results for the panel indicate that oil consumption is price inelastic and highly income elastic. Similarly, an increase in population does not necessarily lead to increased oil consumption. However, when population increase is well supported by corresponding increase in outputs and consumption levels of the nation, it does create additional demand for oil, and not otherwise. Similarly, the rise in prices of petroleum products does not necessarily lead to a decline in oil sales, because the rise in income levels increases the purchasing power of the individuals, thereby negating any negative impact on oil demand. Thus, either directly or indirectly, the only major determining factor in creating higher oil demand is the gross domestic product of a country, rather than anything else. However, this does not hold true in the case of Japan because, despite increasing income levels, there is a decline in demand for oil. Probably the oil deposits in Japan are not sufficient enough to sustain its economic growth. Hence, there is shift away from its dependence on fossil fuel to other alternate sources of energy for meeting the increasing energy demand in the country.