Oil demand is estimated using price decomposition terms to analyze the effects of price and
income upon world oil demand, disaggregated by product: residual oil (used primarily for
generating electricity) and other oil. Equations are estimated for each of six groups of countries, using data from 1971-2006. Most of the demand reductions since 1973-74 were due to fuelswitching away from residual oil, especially in the OECD. Demand for other oil has been much less price-responsive, and has grown almost as rapidly as income. Assuming constant real prices and our estimated elasticities, we project slightly weaker near-term demand growth than the International Energy Agency (IEA) and the U.S. Department of Energy (DOE), but much stronger long-term growth: 17% higher by 2030.