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We follow-up to last week’s post Obliterating Peak Oil Demand: A Progress Update (here). Our main issue with the peak oil demand narrative is that it it doesn’t solve for how everyone on Earth will someday enjoy the lifestyles The Lucky 1 Billion of Us take for granted. We believe the total addressable market (TAM) for oil is 250 million b/d, well above current levels of around 103 million b/d.

The analytical mistake we think many are making is deducting future electric vehicle (EV) growth from something near current oil demand as opposed to from oil’s TAM when everyone on Earth ultimately lives within fully developed economies. Furthermore, EVs only address about 25% of the oil demand barrel and are unlikely to be viable solution for the entirety of even that sliver of demand.

At its core, our long-term outlook for oil demand looks at the relationship between global GDP growth and the quantity of oil demand needed to generate a dollar of GDP. We observe the long-term trend that every year the world generally requires slightly less oil to generate a dollar of GDP, a concept we refer to as “efficiency gains.” In this case, efficiency gains includes both fuel economy (improving miles per gallon) and product substitution (e.g., EVs, SAF, RD). Based on our analysis of “efficiency gains”, there is essentially no evidence oil demand is on-track to plateau let alone decline in coming years. We believe there is not a decade let alone year when anyone today can definitively declare oil demand will peak.

We show two country examples—China and India—which collectively have growth potential of 40-60 million b/d in order to reach a TAM that reflects a 10 barrels of oil demand per capita, consistent with “everyone being rich.” China and India are also examples of what we believe will be the main driver of limiting the TAM of oil markets to something well below 250 million b/d, which is geopolitical security. For countries that are not blessed with abundant crude oil resources, especially sizable ones like China and India, we see a strong motivation to limit growth in oil imports—the ultimate TAM limiter for oil markets.

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⚖️Disclaimer

I certify that these are my personal, strongly held views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue.

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* Intro & Outro music: Wolf Hoffman: Concerto for 2 Cellos in G Minor, Rv 531: I. Allegro Moderato.

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