Is Pokemon Go Bullish for Oil?

Lately I have seen some articles and tweets about how Pokemon Go is bullish for oil prices.

The game is insanely popular and many players are driving around to various in-game hot spots. Indeed, I have seen more than a few people driving around to catch Pokemon and to go back and forth between areas heavily populated with Pokestops and gyms. My office is located across from a large park that has over a dozen Pokestops and gyms, so I have seen just how popular the game is firsthand.

Now most of the articles linking a possible rise in oil prices to Pokemon have been tongue-in-cheek (in fact when I read about a car accident related to Pokemon Go I joked to a friend that it is bullish for the auto parts stock we own), but a few articles have been serious.

I do no think Pokemon Go will have an appreciable impact on gasoline demand, oil demand or prices, or even the auto parts industry, but let’s go through the math to see if I am correct or if there is actually some truth to some of the jokes.

So far Pokemon has been released in the U.S. and Australia and over the weekend Niantic released it in an additional 26 countries. Given that the game is a runaway hit, I think we can safely assume that the game will eventually be released globally to every major developed country. So let’s look at how the game will affect driving habits in the U.S. and then globally.

Pokemon Go Gas Demand in the U.S.

In the U.S., estimates for the active user base for Pokemon Go vary wildly from 9.55 million by Recode to up to 21 million by SurveyMonkey. Since we are trying to disprove my hypothesis that Pokemon Go will not matter for oil prices, we will use the higher number of 21 million.

How many of these users are likely to drive around to play the game? I think it is likely to split along urban and suburban (and rural) demographics. I doubt very many of the Pokemon Go players in New York City are driving around catching Pokemon (yes, I saw the rush to Central Park when a rare Pokemon was spotted, but we are talking regular amounts of weekly driving, not a one-off occasion).

In Lancaster, Pennsylvania, where I live, most people live in the suburbs or rural areas and need to drive to get to different Pokemon areas. According to the 2010 U.S. Census, 80.7% of the U.S. population lives in urban areas — except the census defines urban areas as cities or towns with greater than 2,500 people. I found a FiveThirtyEight.com survey that asked people whether or not they lived in urban, suburban or rural areas. Twenty-six percent of respondents responded that they lived in urban areas. I think that is a much better representation of the non-driving Pokemon player population.

That means we have about 15.5 million Pokemon Go players driving around to play the game. Below is how we determined the extra demand for gasoline in the U.S. due to Pokemon Go.

We assumed that Pokemon players would drive around to play the game three times per week and would drive a total of 20 miles each time. This gives us a total of 48.48 billion extra miles being driven because of the game. The average fuel economy for the existing fleet of passenger vehicles and light duty trucks in the U.S., according to the Department of Transportation, is 21.4 miler per gallon. That gives us a total of 2.27 billion extra gallons of gasoline being consumed. According to the Energy Information Administration, the U.S. consumed 140.43 billion gallons of gasoline last year, meaning the extra gasoline consumed by Pokemon Go players in our example would amount to only a 1.61% increase in consumption. What about globally?

Pokemon Go Gas Demand Globally

If Pokemon Go is just as big of a hit all over the world as it is in the U.S., how would that affect oil and gas demand? There are about 1.2 billion people living in countries categorized as “developed.” If 21 million in the U.S. are playing Pokemon Go, that amounts to 6.59% of the population. Assuming a similar percentage in developed countries was 79 million potential users. According to the World Bank, 54% of those people live in urban areas. Our demand calculations for the globe are below.

We assumed 46% of the users would be non-urban and thus driving. We used the same amount of days and miles as our U.S. example (three days per week and 20 miles). To the best of my knowledge there is no data on global vehicle fleet fuel efficiency. The fuel efficiency standards for Europe, however, are roughly twice as high as in the U.S., and Japan’s fuel efficiency standards are higher than the U.S.’s as well. We figured 30 miles per gallon would be a reasonably conservative assumption (the true number is likely higher). Remember we are trying to disprove the hypothesis that Pokemon Go will not matter so we want to bias our number in favor of higher gasoline and oil demand. Since diesel fuel is much popular outside the U.S., we assumed that both fuel types would be used.

We end up with 122 million barrels of oil in extra Pokemon Go-related demand. Last year 95.29 million barrels of oil per day —Â or 34.78 billion barrels total —Â were consumed. That means Pokemon Go might account for a slight .35% increase in demand compared to last year. In 2016 the EIA estimates that global production will be 96.15 million bpd or 35.1 billion barrels of oil total, and global supply will be 95.29 million bpd or 34.78 billion bbl per year. That is more than enough to cover our projected Pokemon Go demand of an extra 122 million barrel per year.

Summary

Are our hypothetical calculations of Pokemon Go oil demand reasonable? We did some more math to see if our original assumptions were reasonable and found that it amounts to users spending $321.91 per year on the game. (We used the average national gas price from AAA of $2.208.)

That figure seems a bit high to me. Would people be willing to spend an extra $300 on a video game? A World of Warcraft subscription costs between $11.5 and $14 per month which is between $138 and $168 per year. That is probably the upper limit of what someone is willing to spend on a game. That would imply our estimates are about two-thirds too high. We also assumed all players were old enough to drive. The game likely skews very heavily towards kids. Indeed, I have seen a lot of kids out biking to play the game. That will reduce the number of drivers further. What about car pooling? That would reduce the number of miles driven even further.

I think we used rather aggressive assumptions in trying to calculate demand for oil, and we didn not get enough demand to really move the needle. Using yearly spending numbers in line with other games means the increase in global demand for oil might amount to a tenth of one percent, and that is still assuming everyone plays the game and keeps playing for a while year.

While it is fun to speculate that the first big augmented reality would have an impact on oil prices, when we catch the numbers it seems virtually impossible it actually will.

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