Modelling and Forecasting World Oil Demand: A Regional Analysis Accounting for Asymmetric Price Responses and Technical Progress

This study applies the structural time‐series modelling technique to investigate the relationship between aggregate oil consumption, income and prices across six regions of the world over the period 1970–2017. Following arguments in the energy economics literature on how to appropriately capture the impact of technical progress (TP) in modelling energy demand, this paper assumes a general model that incorporates asymmetric price responses (to capture endogenous TP) and an Underlying Energy Demand Trend (UEDT) (to capture exogenous TP and other factors) to estimate price and income elasticities for each region. These estimates are then used to produce future forecast scenarios of oil demand for each of the six world regions up to 2040 based on different assumptions about the future path of key variables that drive oil consumption. The results suggest that for the reference‐case scenario, global oil demand is projected to rise from 98 mb/d in 2017 to 118 mb/day in 2040 consisting of strong growth in the Middle East, Africa and Asia Pacific regions while oil consumption in North America, South/Central America and Europe/Eurasia regions is projected decline.