Europe is in recession. The U.S. is still struggling economically. Yet oil prices remain stubbornly high:  Brent crude hit a six-month high above $119 a barrel on Wednesday (February 15), while U.S. crude rose to above $102, as the pot continues to bubble in oil-producing nations in the Middle East and Africa.

Both the U.S. Energy Information Agency and the International Energy Agency have terrible track records when it comes to forecasting future oil prices. Shane Lofgren at Seeking Alpha reports he has searched in vain for any explanation of their forecasting methodologies. Given their lousy track record and lack of any transparency, Lofgren looks to the IMF for a more satisfactory approach. Lofgren describes the model used by the IMF as a “straight from undergrad economics”, “business as usual” model – about as far from a “peak oil” model as you can get.

With what results? What does the model have to say about the direction of future prices? Lofgren sums up the results of his calculations:

If we are looking at the Brent, which tends to be more reflective of global supply and demand conditions, then that would be $136 at year end 2012 and then $158 at year end 2013.

That sounds like a great deal, but it is not unthinkable, as prices grew at a faster rate than that from ’03 to ’08. Now, many assumptions from the model could prove wrong. GDP might come in below that, and again and there will likely be stronger price responses at higher prices. Still, this gives an impression of a much more serious potential increase in prices than the IEA has suggested.

Remember, Lofgren isn’t talking about any peak oil impacts here – he’s assuming a supply response to price increases.

Even at current prices, petroleum consumption in the U.S. is falling off a cliff. Mish Shedlock posts this chart showing rolling three-month averages.

Historically, economic growth has been highly correlated to the growth in energy supplies.

With petroleum consumption plummeting, can the “economy” be far behind?

It’s not just oil. Electricity consumption in the U.S. is down, too. Charles Hugh Smith posts these charts at Of Two Minds.

Electricity usage in the U.S. is no longer growing, but rather is now in a downtrend with no historical precedent.

Hopes that debt crises in the U.S. and Europe can be kicked down the road, eventually to be bailed out by a return to business as usual – robust economic growth – are likely to prove to be nothing more than wishful thinking. Maybe it’s time to get over our love affair with oil? As Paul Simon sang, the problem is all in our heads.

You just slip out the back, Jack
Make a new plan, Stan
You don’t need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don’t need to discuss much
Just drop off the key, Lee
And get yourself free

The beginning of 2012 has seen petroleum and gasoline usage in the U.S. fall off a cliff. In two of the last three weeks of January, gasoline usage has dropped below 8,000,000 barrels per day. The last time usage fell that low was the week of September 21, 2001.

This chart by Tim Wallace showing petroleum and gasoline usage, based on Energy Information Agency data with added polynomial trend lines, is posted by Mish Shedlock.

The weekly data in the above chart are from the Energy Information Agency. This chart from the EIA shows the four-week average, which removes much of the week-to-week “noise” and better shows the seasonal pattern and overall trend. The downward trend in gasoline consumption since 2007 and the January 2012 collapse are clearly evident.

Since 2005, global crude oil production has been bumping up against a ceiling around 74 million barrels a day.

Gregor Macdonald points out that since 2005, European oil consumption has fallen by 1.5 mbd and U.S. oil consumption by 2 mbd. Macdonald mocks any further attempt to deny the reality of peak oil:

Today, in 2012, I observe that many analysts of global oil production—and the interaction between oil prices and the global economy—continue to engage in a guessing game about the future. But, frankly, the future has already arrived. And it is not a random future, but a future that was held to be improbable, if not impossible. For each extra barrel of oil produced over the past seven years from Russia, and Canada, there has been a loss of production from the North Sea, from Mexico, from Indonesia and elsewhere. And in the case of OPEC, there has been a stubborn flatlining of production growth, which, in the true spirit of argumentum ad ignorantium, has been taken as proof of OPEC’s hidden and secret supply. Thus, we are led to the newest and strangest meme of all: the failure of global oil production to grow over seven years, in the face of a phase transition in oil prices, is not even suggestive of peak oil. But rather, proof of oil’s imminent supply resurrection.

Macdonald oblique phrase -  “a phase transition in oil prices” – refers to the fact that global crude oil supplies are proving inelastic as they no longer increase in response to price signals. Higher prices do not result in increased production, as seen in this chart posted by Gail Tverberg at Our Finite World.

With global crude oil production flat and consumption by “developing” countries such as China and India increasing, something has to give. The “give” is proving to be consumption by developed countries, including the U.S. and European countries.

Historically, economic growth has been closely correlated with oil consumption. To believe that economic growth in the U.S. can resume even while oil consumption is falling would require that the historic connection between oil consumption and growth has been broken. That’s quite a presumption.

In Europe, the most current “rescue” drama involving Greece continues. But the success of any bailout is predicated on a resumption of growth. Is anyone predicting that the downward trend in oil consumption in the EU will reverse? Tverberg points out:

[W]hen limited oil supply is rationed by high oil prices, economic growth slows down, and eventually decreases. When this happens, it becomes much less advantageous to borrow from the future, because the future is no longer better than today. If an economic contraction occurs for very long, the whole debt system can be expected to undergo a major “unwind”.

If no one can rationally expect oil supplies available to Europe and the U.S. to reverse their downward trend and once again begin increasing, what’s the basis for hope for future economic growth? For the faith that today’s debts will be repaid out of tomorrow’s growth?

One would expect that the January plunge in U.S. gasoline consumption would be reflected by a similar plunge in vehicle miles traveled. We’ll see in late March, when the Federal Highway Administration releases its Traffic Volume Trends for January 2012.

AP reports the typical American household will have spent a record $4,155 on automobile fuel this year – 8.4% of what the median family takes in, the highest share since 1981.

Don’t expect 2012 to be any better. More likely, fuel will be getting even more expensive.

Brent crude will average near $111/barrel for 2011, even more than in 2008 when oil prices hit a peak of $147.50/barrel. Some analysts think oil prices will average a bit less in 2012, perhaps averaging $105/barrel. Others analysts predict that oil prices will be even higher than in 2011, projecting WTI (which have consistently been significantly lower than Brent this year) to average $100 per barrel next year, eclipsing 2011′s average of about $95/barrel. Oil-price.net projects WTI prices to be at $112 a year from now.

Nobody is expecting oil prices to drop, or at least not much. Here’s a big reason why: Saudi Arabia, the world’s lowest-cost producer, requires a price of $91/barrel just to break even.

The glory days of cheap gas are over for good. Our memories aren’t playing tricks: remember gas wars, gas at 19.9 cents a gallon? In my Fiat 850 Spyder – $2000 new, right off the lot, and 50 mpg – driving seemed virtually free. We were young and immortal, oil was infinite, and the world was empty and ours for the taking. There were no bounds, no limits. Vietnam and then the first gas crisis in 1973 were the first intimations that the imperial project – to stride over not just the nations of the world, but over Nature herself – was destined to go awry.

A few were prescient. Limits to Growth was published in 1972, foreseeing humanity bumping up against constraints to both sources and sinks by the first decades of this century. Way back in ’56, Shell geologist M. King Hubbard predicted that U.S. oil production would peak in 1970 – a prediction that proved spot on.

Porter Stansbury at The Daily Reckoning posts this chart showing “real wealth” per capita in the U.S. since the mid-’50s.

Note that “real wealth” in the U.S. peaked about the same time as U.S. oil production. Coincidence?

Stansbury measures “real wealth” using a standard commodity index (the CRB) up to 1975 and gold post-1975 (when gold began to trade freely). When peak oil arrived in the U.S., Nixon took the U.S. off the gold standard. With the U.S. kissy-face with the Saudis, the dollar became the petrodollar.

I’m not sure I would put a lot of faith into this measure of “real wealth” – but the correlation of peak wealth with peak oil is provocative. There’s no question that the U.S., indeed the entirety of Earth, has become a poorer, more degraded home for humans since 1970, despite decades of “growth” and “progress”. That degradation doesn’t even begin to show up in our accounts.

Around 1970, reality arose and smacked us across the face.  Humanity has been working through the range of responses – denial, anger, bargaining, depression, not yet acceptance – ever since.

A previous post (Oil supply constraints impacting housing, land use patterns) discussed a post by Sam Foucher at the Oil Drum (The JODI-EIA Divergence) examining data sources for global oil production figures. In that post Foucher observed that the U.S. Energy Information Administration relied on others for its data, implying that the accuracy and reliability of that data might be less than ideal:

The EIA does not collect international production data but apparently pays IHS for the data (at least until the recent budget cuts).

I asked the EIA to comment on Foucher’s observation.  Here’s the response I received from Patricia Smith of the EIA’s International Energy Analysis Team:

Thank you for your interest in the U.S. Energy Information Administration. I have checked with all of the staff involved in putting together our world oil production data series.

The statement “The EIA does not collect international production data but apparently pays IHS for the data (at least until the recent budget cuts).” is not necessarily 100 percent accurate.

It’s true, we don’t “collect” international data from any type of survey or similar tool.  Years ago, there was a program through the State Department, that sent out forms to the U.S. Embassy Posts in a number of countries to collect various mineral and energy data.  That program ceased because of staff shortages, and of course budget cuts.

Actually, we use a variety of sources in compiling our data series including,  IEA, Woodmac, Energy Intelligence (until recently), BP, company contacts, national sources, trade data, and industry reports (Platt’s, MEES, Reuters, Dow Jones, etc.).

In previous years, we did use IHS for a handful of countries with smaller levels of production (Cuba, Belize, etc.).

I hope this is helpful.

Evaluating the accuracy and reliability of EIA’s data series would thus require a thorough evaluation of each of the data sources EIA relies on, plus an evaluation of how EIA uses its data sources in arriving at its reported figures. No small task.

One thing is crystal clear: the recently-announced cuts in the EIA budget will mean EIA data will be less reliable and more open to question in the future.

The Environmental Law Institute recently conducted a review of U.S. government fossil fuel and renewable energy subsidies for Fiscal Years 2002-2008. The findings are presented in the paper, Estimating U.S. Government Subsidies to Energy Sources: 2002-2008 – and illustrated in the graphic “Energy Subsidies Black, Not Green.”

Key findings include:

• The vast majority of federal subsidies for fossil fuels and renewable energy supported energy sources that emit high levels of greenhouse gases when used as fuel.
• The federal government provided substantially larger subsidies to fossil fuels than to renewables. Subsidies to fossil fuels – approximately $72 billion over the study period, as opposed to $29 billion for renewables.
• Almost half of the subsidies for renewables went to corn-based ethanol [which at best has a barely positive EROEI, and whose climate and environmental consequences are questionable].
• The largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.
• The vast majority of subsidy dollars to fossil fuels can be attributed to just a handful of tax breaks, such as the Foreign Tax Credit ($15.3 billion) and the Credit for Production of Nonconventional Fuels ($14.1 billion, though this credit has since been phased out).

The July 2010 edition of Oilwatch Monthly reports that both crude oil and liquid fuels production continue their slow decline from peak levels. The charts below taken from the report are posted at The Oil Drum.

Oil consumption in the twenty-seven countries of the European Union peaked in 2006 and has since been declining at a rate of 3% per year. Oil consumption in the transport sector in the EU began to decline in 2008, dropping 1.4% from 2007. Oil consumption in road transport fell, offsetting a continuing but slowing rise in air transport consumption.

Usings less oil than the U.S. does not mean the EU is less prosperous than the U.S. EU nations consume only 60% of the oil as the U.S., but  the gross domestic product of the combined 27 EU nations exceeds that of the U.S. by 15%.

Today the Federal Highway Administration reported travel on all roads and streets decreased by -1.6% (-3.7 billion vehicle miles) for January 2010 as compared with January 2009. Travel for the month is estimated to be 222.8 billion vehicle miles.

Vehicle miles traveled (VMT) in the 13 western states were off more than the national average – 2.8%.  VMT in Oregon were off 1.2%. Oregon VMT were up 12.8% in 2009 over 2008, but now appear to be dropping again.

The rural/urban split of the total VMT was about 1/3: 2/3 -  72.0 billion vehicle-miles on rural roads and 150.8 billion vehicle-miles on urban roads and streets.

VMT have declined 2.9% compared to January 2008, and are down 4.7% compared to January 2007. As gas prices have been rising again (as discussed here), it looks like VMT are once again dropping.

Gasoline prices are up, approaching $3/gal. across the U.S. and getting close to being a dollar more per gallon than a year ago.

Bill McBride at Calculated Risk has posted a chart showing the relationship between gas prices and vehicle miles traveled (VMT).

McBride explains:

Although vehicle miles driven are noisy month to month, it appears that miles driven responds to spikes in oil prices.

For the last few weeks, oil prices have been bouncing around $80/barrel, a price level last seen just before oil prices spiked in 2008. Will we once again begin to see demand destruction and a collapse in VMT, such as we saw in 2008?

For December 2009 – the last month of data – the DOT reported that miles driven were unchanged compared to December 2008 after increasing in 5 of the 6 previous months. The report for January should be out this next week.  Should be interesting.

Stuart Staniford at Early Warning has posted this chart showing that new vehicle fuel economy wasn’t very responsive to the oil price spike of 2005-2008.

Unlike the oil crisis of the late ’70s, people just didn’t run out and trade in their gas guzzlers for new fuel-efficient cars. And “cash for clunkers” did very little to offset the impacts of lower gas prices.

With gas prices down from the spike in 2008, vehicle miles traveled (VMT) is once again on a growth path after falling in 2008. The Federal Highway Administration reports travel on all roads and streets was up 2.5% (5.8 billion vehicle miles) for September 2009 as compared with September 2008. Cumulative Travel for 2009 through September was up 0.3% (6.7 billion vehicle miles) over 2008.

U.S. Vehicle Miles through January 2009

The decline in VMT totaled 122 billion for the period December 2007 to January 2009, compared to the same 14-month period a year earlier. If VMT keeps increasing by almost 6 billion miles a month, it won’t be long before VMT is back to where it was before the oil price spike hit. If oil prices spike again . . . ?

The Energy Information Administration reports petroleum used for transportation in 2009 remains significantly less than in 2007 and 2008 (8.0% and 4.2%, respectively).

Forget “green growth”. Judging by the hard numbers, only two economic factors produce reliably good environmental outcomes: high energy prices and recession.

That’s what Mark Lynas writes at the New Statesman. We need to go cold turkey to kick our addiction to oil:

Unfortunately, these two drivers of emissions reductions are also the two things that everyone seems desperate to avoid.

The good news is, as fossil fuels begin to price themselves out of the market, they could make up for the failure of politicians to do anything to slash emissions.

But remember, the biggest historical contributor to carbon dioxide emissions, and the biggest ongoing threat to climate stability, is coal. Production of this dirtiest of all fuels has been rising for most of the past decade, led by the surging use of coal for industrial uses and to generate electricity in China.

The U.S. Energy Information Agency is projecting an almost 50% increase in coal consumption from 2006 to 2030. That’s the same thing as projecting climate catastrophe.