Demand destruction

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Demand destruction is an economic term used to describe a reduced demand for a commodity induced by a prolonged period of high prices and/or constrained supplies.[1] The term has been around for some time, but it was added to the buzzwords used to describe the economic situation in the U.S. in mid-2008 as high fuel prices began to change consumer spending behavior.

Demand destruction in the energy market has the potential of playing out as drivers not driving and not using gas and the hit to disposable income from the pain being suffered by consumers because of higher prices.[2] On July 29, 2008, BP Plc CEO Tony Hayward told reporters that he saw demand destruction of 5 percent to 10 percent for gasoline in developed OECD (Organisation For Economic Co-Operation And Development) economies as a result of less driving because of higher prices.[3]

Some questioned whether the demand destruction was really a possibility during the time period in the U.S., however, as gasoline and oil data could be molded to fit both sides of the argument.[4]



References

  1. Demand Destruction Could Explain Gas Price Drops. UticaOD.
  2. Banking on Demand Destruction. Forbes.com.
  3. BP Sees 5-10 Pct Gasoline Demand Destruction in OECD. Reuters.
  4. Where's The Demand Destruction. The Oil Drum.com.