Factors Influencing Oil Demand Among Ten Leading Countries: Empirical Evidences

Abstract

This paper aims to investigate the factors influencing oil demand across a panel of ten countries from 1990 to 2020. The study considers several variables, including oil consumption, gross domestic product, population, oil prices, and per capita income, to explore their impact on oil demand. The results obtained from the random effect model indicate that GDP, population, and per capita income exert a positive and significant influence on oil consumption. This suggests that as economies grow, both in terms of overall size and individual prosperity, there is an associated increase in oil consumption. Similarly, a larger population also contributes to higher oil demand, reflecting increased energy needs for transportation, industrial production, and domestic consumption. Conversely, the analysis reveals a negative relationship between oil prices and oil consumption. This finding suggests that higher oil prices tend to dampen oil demand, as consumers and industries seek alternatives or become more energy-efficient in response to increased costs. This underscores the importance of price elasticity in shaping oil consumption patterns. Furthermore, the co-integration test results indicate the presence of a long-term relationship between the variables under consideration. This suggests that the relationships observed between oil consumption, GDP, population, oil prices, and per capita income persist over time and are not merely short-term fluctuations. Based on these findings, the study recommends that policymakers in the top ten oil-consuming countries focus on these key drivers of oil consumption when formulating policies and forecasting future oil demand. Understanding the determinants of oil demand is crucial for effective energy planning and policy formulation, particularly in the context of global energy transitions and efforts to mitigate climate change. By considering factors such as economic growth, population dynamics, oil prices, and income levels, policymakers can develop targeted strategies to manage oil demand more effectively. This may involve promoting energy efficiency measures, investing in renewable energy sources, diversifying the energy mix, and exploring alternative transportation options. This paper contributes to our understanding of the determinants of oil demand across a panel of ten countries. By identifying the key drivers of oil consumption and highlighting their significance through empirical analysis, the study provides valuable insights for policymakers and stakeholders in the energy sector. By addressing these drivers, policymakers can better anticipate and manage oil demand, contributing to more sustainable and resilient energy systems in the future.