Peak Oil is You

Donate Bitcoins ;-) or Paypal :-)

Page added on August 19, 2017

Bookmark and Share

Running For The Exits: Peak Oil Demand



A terminal price decline in oil is inevitable.

Trends in EV cost, ICE efficiency, and driverless cars will cripple oil demand.

The price decline we have seen with coal — a commodity that continues to see minor demand growth — will pale in comparison to the price drop coming for oil.

Investors should liquidate their connection to oil producers before the end of the current decade.

A little over a year ago, I put my thoughts together on why I think we will reach peak oil demand soon — and the effects that will have on commodity prices.

A Terminal Decline

Peak oil supply or demand has long been a topic of discussion in commodities. In the past year, we have seen new information and a continuation of existing trends that have removed any doubts from my mind. Investing in oil companies today would only be a smart view if investors have a short time horizon and a high appetite for risk. While large companies such as Shell (RDS.A) and Exxon Mobil (XOM) will continue to exist for decades to come, they will lose a substantial percentage of their valuations when terminal price decline hits.

History has proven that demand does not even need to stagnate to cause terminal price decline, and oil will be no different. The OPEC Cartel has already shown its inability to raise prices substantially and has defaulted to a price range around $50/bbl.

Source: IEA Medium Term Coal Report

The reasons are straightforward and simple, and while I am cognizant of my own biases I have been right about oil prices for the last two years, and this should provide a small amount of confidence in my predictions. I can also count on some vocal Seeking Alpha readers to vehemently disagree and challenge my ideas.

An Improbable Ban

Many countries have proposed diesel, and petrol car bans over the next two to three decades. While this prohibition will be politically impossible to enforce when the time comes, market forces will have done much of the governments work for them. Today’s European administrations are making a major decision that resonates with their political base, but will not have to deal with the major issues of actual implementation. History has shown time and time again that modern governments will just unwind any legislation that has a noticeable and immediate effect on consumers wallets. When we consider trends in EV cost, renewable energy cost, clean air policy, and the general movement towards a more sustainable future, we will meet terminal price decline without any government action.

History has shown time and time again that modern governments will unwind any legislation that has an obvious and immediate effect on consumers wallets. The only ‘successful’ legislation that has been passed (measuring success by achieving its goal rather than by its good for society) is legislation that has a moderate effect spread over a longer period. Thus a sudden vehicle ban will fail just as reducing pensions for burdened systems, increasing retirement age has failed around the world.

How Cheap Can EV Get?

When we consider trends in EV cost, renewable energy cost, clean air policy, and the general movement towards a more sustainable future, we will meet terminal price decline without any government action. Even as Trump exited the Paris agreement many companies, cities, and states openly stated their willingness to follow the accord.

Lithium-Ion battery prices continue to fall at a relatively constant rate of 15% – 21% per year depending on the analyst and study. This follows the general trends we have seen over the history of mass production. We saw this with the Model T, solar, wind, and thousands of other mass produced products over time. It is a difficult argument to make to say that batteries will be on few products in history that do not follow historical patterns for mass production. Furthermore, the abundant research that goes into incremental improvements in batteries could easily cause a sudden drop in prices, efficiencies, storage, or all three that turns the industry on its collective head.


This translates into a near identical chart for EV. Hybrid vehicles and fully electric vehicles are set to make up a rapidly increasing share of on road vehicles


Constant Improvements in Combustion Engines

Let us say you completely disagree with everything I said so far. After all, past performance is not an indicator of future performance. Perhaps we hit a sudden cliff in battery production; maybe we run out of lithium. Even with that assumption, oil is still doomed to terminal decline.

The last 10 years have seen massive improvements in combustion engine efficiency due to consumer behavior and government regulation.

Source: United States EPA

There is no reason this trend should also not continue. Developed countries across the world are regulating more efficient vehicles. Most governments expect an increase fuel efficiency by approximately 50% through to 2020 considering incremental improvements in typical combustion engines and lightweight vehicles.

However, incremental improvement is not always the case. Sudden improvements can come – and they are. A new engine from Mazda promises to increase fuel efficiency by 35-45%. It is also expected to be on the road by 2019. It would not be a stretch to see family sized SUVs reaching 45 mpg.

Driverless Vehicles

The last important note is the inevitability of driverless cars. If a fleet of taxis can be managed remotely, and without drivers, the cost would plummet. If the expense of a cab or an Uber drops by 90%, it would hardly make sense for many young adults to purchase a vehicle. We can argue about the timing, but driverless cars will make a very slow penetration into the market in the next ten years – at some point, it will take off and quickly reach a substantial percentage of road traffic. In Europe today, many young people already delay owning vehicles until well into their thirties.

Investor Takeaway

The most important thing to understand is that terminal price decline in a commodity does not mean we do not require it anymore. Coal demand continues to grow slowly despite societies view that we don’t use it much anymore. Base power generating technology takes much longer to displace, and as with oil, it will still be many more decades before coal consumption ceases.

Oil prices, oil demand, and oil supply are undoubtedly a pillar of modern society. However, it is more susceptible to trends than many other raw commodities for a variety of reasons. A 5% reduction in oil demand would fundamentally cripple the oil price for half a decade. From the trends I see occurring, a 5% reduction would just be the beginning. I would stay away from any long-term approach to oil, and ultimately liquidate my holdings connected to the commodity before the end of the current decade.

seeking alpha

35 Comments on "Running For The Exits: Peak Oil Demand"

  1. penury on Sat, 19th Aug 2017 5:24 pm 

    Maybe yes, maybe no, who knows? It is obvious that the authors have no idea. My bet is that they are wrong.

  2. GregT on Sat, 19th Aug 2017 6:17 pm 

    “and the general movement towards a more sustainable future, ”

    I stopped reading this drivel at this point. There is no such thing as “more sustainable”. Something is either sustainable, or it is not. Period.

  3. Go Speed Racer on Sat, 19th Aug 2017 6:36 pm 

    Nobody will want oil anymore? LOL.

  4. Banjo on Sat, 19th Aug 2017 7:14 pm 

    Santa Claus is going to help us reach peak oil demand. We can run around with reindeer problem solved. Please.

  5. Davy on Sat, 19th Aug 2017 7:19 pm 

    Try this peak oil demand on for size:

    “David Stockman Warns “Don’t Forget About The Red Swan”

    “It puts the lie to the latest Wall Street belief that the global economy is accelerating and that surging corporate profits justify the market’s latest manic rip. What is actually going on is a short-lived global credit/growth impulse emanating from China. Beijing panicked early last year and opened up the capital expenditure (CapEx) spigots at the state-owned enterprises (SOEs) out of fear that China’s great machine was heading for stall speed at exactly the wrong time.”

    You cannot grow an economy indefinitely by building pyramids or any other kind of low-return/no return investment – even if the initial growth spurt lasts for years as China’s had. Ultimately, the illusion of Keynesian spending gets exposed and the deadweight costs of malinvestments and excess capacity exact a heavy toll. If the investment boom that was financed with reckless credit expansion is not enough, as was the case in China where debt grew from $1 trillion in 1995 to $35 trillion today, the morning-after toll is especially severe and disruptive. This used to be called a “depression”

    “Downside Surprises in China Are Virtually Baked In. The sell-by date has expired on this latest China credit impulse, as evident in the chart below. During the first quarter of this year, total social financing (bank credit plus shadow banking loans) reached the incredible rate of $4 trillion per annum. That’s nearly one-third of China’s entire GDP. The figure scared the daylights out of leadership in Beijing, who have now moved forcefully to reel in China’s debt machine. What is coming down the pike is the great China Debt Retrenchment. Expect a global braking motion that will get underway once Mr. Xi dramatically consolidates his power at the 19th party congress.”

    “This has the potential to drastically weaken the global economy – and the impact on corporate profits should not be underestimated.”

    “As China’s nominal GDP was more than doubling from $4.6 trillion in 2008 to $11.2 trillion in 2016, its national leverage ratio soared from 175% of GDP to 300% in less than a decade. There’s reason to seriously doubt that Beijing can bring the Red Ponzi to a soft landing. It cannot and will not permit the nation’s debt load to quadruple again during the next eight years, meaning that China’s days as the world’s ultimate stimulus machine are over.”

  6. bobinget on Sat, 19th Aug 2017 7:20 pm 

    Serious Russian money and hard hats, backing PDVSA. (fresh news) (this just in)

    Images, Russian oil workers;

    I’m still in shock that this Chinese/Russian coup has been overlooked by most everyone. I understand, people don’t read me but, how bout Goldman S and alert Tweeters ?
    Oh, and my only fan, dear davy.

  7. Davy on Sat, 19th Aug 2017 7:24 pm 

    bob, I am waiting for results not just talk. This is not a dating site.

  8. bobinget on Sat, 19th Aug 2017 7:42 pm 

    Oh lord, I just noticed the thread of this post should read; “OMG we have way too much oil cause
    China is spitting out E bikes and E cars by the thousand”.
    Never mind China will produce 25 million
    ICE cars and trucks. THIS YEAR

    World production;

    Keep in mind, today the average ICE vehicle can last 20 years. So, even if the world stopped making
    IC aircraft, rail, ships, long distance trucks, AG machinery, plastics, chemicals etc TODAY— most demand would remain inelastic.

  9. Makati1 on Sat, 19th Aug 2017 7:48 pm 

    America in the news:

    “”What Is Happening To Our Young People?” Teenage Drug Deaths Surge 20%” Snowflakes melt.
    “The Last Frontier For Gun Control: Washington Court Rules In Favor Of Seattle’s “Gun Violence” Tax”
    “When Haters Hijack History”
    “Did Marco Rubio Just Say It’s OK To Beat People For Their Thoughts?” 1984
    “”Colossal Fraud”: Lawsuit Accuses Poland Spring Of Selling Groundwater” One of many.
    “Hugh Smith: “We Need A Social Revolution””
    “CalExit 3.0: New Petition Calls For Cali Secession…3rd Time’s A Charm?”

    “Will Charlottesville Be a Pretext for Toughening Police State Laws?”
    “US Policy Paradox: How to Lose Friends and Influence Nothing” Paper tiger.
    “US Forces to Occupy Syria for Decades to Come” The US will not last that long.
    “Confirmed: Police Told to Stand Down in Charlottesville—Did Nothing as War Broke Out” Divide and conquer.
    “Will Blackwater Replace the World’s Most Powerful Military to Win Afghan War?” This was a sign of the end of Rome also.

    And, finally:
    “China’s Belt & Road members tally increases to 69”
    ““A historic day”, says Zuma at launch of BRICS Bank African unit”
    “China approves projects worth over $24 billion in July” Most every project moves Chinese workers to the new location. Millions are already working in other countries on Chinese funded projects. Population reduction by investment?

    And the slide continues in America.

  10. rockman on Sat, 19th Aug 2017 10:39 pm 

    “The price decline we have seen with coal — a commodity that continues to see minor demand growth — will pale in comparison to the price drop coming for oil.”

    I assume this article is a tad out of date. During 2016 the price of US steam and metallurgical coal has almost doubled from $80/stn to $150/stn. As a result those exports increased about 75% over the same period. BTW both increases came when President Obama was in office before President Trump took the oath.

    Makes you wonder how accurate their prediction of future oil prices might be, eh? LOL.

    From the EIA:

  11. rockman on Sat, 19th Aug 2017 10:45 pm 

    Racer – “Nobody will want oil anymore?” Probably the 1.5 million folks that bought EV’s in 2016 won’t want as much. But I suspect the 84 MILLION that bought new ICE’s in 2016 will for a while. Along with the owners of the 1.2 BILLION ICE’s already on the road.

    At least for a while longer. LOL.

  12. Go Speed Racer on Sun, 20th Aug 2017 3:12 am 

    Hi Mr. Rockman, yeah, I don’t think ya can fill up
    your 747 on Lithium powder either.

    When they put enough EV’s on the road, the grid won’t
    be able to supply them all.

    And if you double the fuel economy of the ICE,
    its questionable whether lithium battery car, is even
    any better at all.

    The best ICE enhancement I have spotted on the internet
    is the opposed piston opposed cylinder “OPOC” engine
    and they have production ready prototypes and it’s all
    working great just that all the business leaders want to
    oppose progress and oppose it absolutely. (the exception
    was Steve Jobs, and look what happened).

    Otherwise the OPOC engine would be under every car
    hood already. Anyway for the quadrillion pounds of
    scrap steel on wheels already rolling all over the country
    tell me we’re gonna replace all those cars, or they dont
    need oil no mo. My Chevy pickup runs on gasalleen
    and it won’t run on an orange weedeater cord. LOL.

  13. Go Speed Racer on Sun, 20th Aug 2017 3:24 am 

    The OPOC engine seen as animation

    Test lab in San Diego …

    Detailed discussions with founder:

    Of course, Mr. Trump is bringing back 11 mpg V8 engine
    in Lincoln Continental 1978 design with 12 foot long car
    hood and 8-track and power everything and moon roof and tilt wheel, with Air Conditioning that blows crushed
    ice all over your shirt. Even bringing back John Denver
    “Take me home country roads” on 8-track.

    It’s 460 cubic inches and a 40 gallon gas tank.
    Trumps’ got a point, cars like that are more important
    than raising fuel economy.

  14. Cloggie on Sun, 20th Aug 2017 5:20 am 

    Offshore wind foundation market in Europe.

    Did some research this morning about the size of the European (=global) offshore foundation market and production capacity:

    The big offshore wind expansion has yet to begin in all earnest.

    Oil producers should be afraid, very afraid (or seek a job in the booming offshore wind industry; guaranteed to ‘dry holes’.lol).

  15. Dredd on Sun, 20th Aug 2017 5:39 am 

    “Running For The Exits”

    So, ICE and Oil=Qaeda have something in common (The Question Is: How Much Acceleration Is Involved In SLR? – 10).

  16. MASTERMIND on Sun, 20th Aug 2017 8:27 am 

    First comes the Nazi’s! Then comes the Zombies!

  17. Cloggie on Sun, 20th Aug 2017 8:39 am 

    First comes the Nazi’s! Then comes the Zombies!

    So true.

  18. MASTERMIND on Sun, 20th Aug 2017 9:05 am 


    You are a right wing nitwit. You link to the most absurd sites on the web. Its obvious based on your age and length of stay in the US. You inhaled way to much lead in your gasoline everyday for many years. Which has lowered your IQ rate to below room temperature. LOL

  19. bobinget on Sun, 20th Aug 2017 9:44 am 

    Exclusive: “Bank Jitters” 8/17
    MEXICO CITY (Reuters) – A tanker carrying a cargo of about 1 million barrels of Venezuelan heavy crude has been stranded for more than a month off the coast of Louisiana for lack of a bank letter of credit to discharge, three sources have told Reuters.

    The cargo’s fate adds to state-run oil company PDVSA’s precarious financial position. Revenue from the company’s oil sales, which have suffered because of low prices and declining production, account for more than 90 percent of the nation’s exports.

    Major banks are cutting exposure to Venezuela as a result of political upheaval in the South American country. Some have closed accounts linked to officials of the OPEC member who have had sanctions leveled against them by the U.S. government and have refused to provide correspondent bank services or trade in government bonds.

    Credit Suisse this month barred operations involving certain Venezuelan bonds and is now requiring that business with President Nicolas Maduro’s government and related entities undergo a reputation risk review.

    The United States is considering further economic sanctions that would dry up the country’s access to Wall Street.

    PDVSA and its joint ventures exported 638,325 barrels per day (bpd) to the United States in July, 22 percent less than the same month of 2016, according to Thomson Reuters Trade Flows data.


    The tanker Karvounis carrying Venezuelan oil is anchored at South West Pass off the coast of Louisiana, according to Reuters vessel tracking data. PBF Energy Inc, the intended buyer of the cargo, has been trying unsuccessfully to find a bank willing to provide a letter of credit to discharge the oil, according to two trading and shipping sources.

    CASH BUYERS PDVSA’s cash flow has shrunk in recent years due to extended deals to barter its oil for refined products, services and loans. Chinese and Russian entities currently take about 40 percent of all PDVSA’s exports as repayment for over $60 billion in loans to Venezuela and the company in the last decade, according to a Reuters analysis of its sales. This has left U.S. refiners among the few remaining cash buyers. Some banks have continued working with Venezuela. In May, Goldman Sachs purchased $2.8 billion of Venezuelan debt bonds at steep discount, a move criticized by the Venezuelan opposition and other banks. But as more banks look to reduce their exposure to Venezuela, the situation is affecting PDVSA’s payments to bondholders and its routine oil sales and purchases, according to bank and trade sources.

  20. Davy on Sun, 20th Aug 2017 10:33 am 

    Check out how peaceful makat Asia is these days:
    “Video Emerges Showing Clashes Between Indian, Chinese Soldiers”

    “Late last week, we reported that in the first documented clash between Chinese and Indian soldiers who have been piling up across the border between the two nations over the latest territorial dispute, “Indian and Chinese soldiers were involved in an altercation” in the western Himalayas on Tuesday, “further raising tensions between the two countries which are already locked in a two-month standoff in another part of the disputed border.” A Reuters source in New Delhi who was briefed on the military situation on the border, said Indian soldiers “foiled a bid by a group of Chinese troops to enter Indian territory in Ladakh, near the Pangong lake.” He added that some of the Chinese soldiers carried iron rods and stones, and in the melee there were minor injuries on both sides.”

  21. bobinget on Sun, 20th Aug 2017 10:40 am 

    Lots of news. Here’s one On topic.

    Hellenic Shipping News

    Total petroleum deliveries in July moved up by 4.9 percent from July 2016 to average nearly 20.7 million barrels per day. These were the highest July deliveries in 10 years, since 2007. Compared with June, total domestic petroleum deliveries, a measure of U.S. petroleum demand, increased 1.6 percent. For year-to-date, total domestic petroleum deliveries moved up 1.3 percent compared to the same period last year.

    The overall economy in the U.S. showed gains in July, adding 209,000 jobs, according to the Bureau of Labor Statistics (BLS). The U.S. unemployment rate and the number of unemployed persons remained essentially unchanged at 4.3 percent and 7.0 million, respectively.

    “Strong demand for petroleum is a good sign for the economy which grew for the 98th consecutive month,” said API Director of Statistics Hazem Arafa. “American workers and consumer continue to benefit from these positive economic signs along with relatively low fuel prices.”

    Gasoline deliveries were up from the prior month and the prior year to reach an all-time high in July. Total motor gasoline deliveries, a measure of consumer gasoline demand, increased 1.0 percent from July 2016, to average nearly 9.7 million barrels per day. Compared with June, total motor gasoline deliveries increased 0.8 percent. For year-to-date, total motor gasoline deliveries decreased 1.0 percent compared with year-to-date 2016 to the second highest year-to-date level at 9.2 million barrels per day.

    U.S. crude oil production continued to rise and was above 9.0 million barrels per day for the sixth consecutive month. Domestic crude oil production in July increased from the prior month, the prior year, and the prior year-to-date to reach its highest July output level in 45 years, since 1972. Domestic crude oil production increased

  22. bobinget on Sun, 20th Aug 2017 10:43 am 

    Chinese and Indians threw rocks at each other.
    Then, the fight escalated to fist fighting.
    Get a grip.

  23. bobinget on Sun, 20th Aug 2017 10:50 am

    Russia and China figure a way to divide up Venezuelan spoils. Merge.

  24. bobinget on Sun, 20th Aug 2017 11:26 am 

    Often, drilling for oil on “Wall Street” proves more profitable. (Not cleaner then rock&dirt)

    For China to keep up even six percent growth, it NEEDS a big slice of Venezuelan oil.
    Russia/Venezuela need cash to restore V’s production.
    Four mill B p/d possible in 2 or 3 years.
    If US based Saudi refineries need oil they gonna pay.

    Need more stuff?

    One equity to watch Wednesday, Sea Drill (SDRL)
    If SDRL comes in with any earnings what so ever,
    Risk a few bucks. 100 cost $27. USD (Fri close)
    Apart from Canada’s and Venezuelan oil sands,
    deep water exploration will be the only way to
    keep those UPS trucks delivering more STUFF.

    Long term, IMO, shale (oil) goes from squirt to drip.

    Full disclose, I loaded up Friday. This stock is so cheap I figure you won’t put out a contract on me if
    PoO tanks.

  25. Davy on Sun, 20th Aug 2017 11:53 am 

    “Chinese and Indians threw rocks at each other. Then, the fight escalated to fist fighting. Get a grip.”

    WOW, we know bob’s agenda. How long until people are shot and killed bob and then what? What if this was US and Russian soldiers in Estonia? OOOH, bob, you would be shitting a cow then. Give me a break bob you are off in the deep end of agenda. Yea, I have my agenda and it is pissing on your unbalanced extremist agenda.

  26. Davy on Sun, 20th Aug 2017 11:57 am 

    Russia and China figure a way to divide up Venezuelan spoils. Merge. Sure bob that is the master plan isn’t it. You have been to the negotiations and know all about it. What is it about old farts on this board and their wild and crazy ideas? Is this what we have to look forward to in old age dementia? Bobism, makatism, and cloggedism

  27. bobinget on Sun, 20th Aug 2017 5:56 pm 

    Oh Davy the impatient, predicting PoO is down right impossible. If it were easy, this web site,
    #OOTT, IV, a dozen others, wouldn’t exist. I offer links to news events, like clues, from reputable sources.
    Other news junkies are welcome to make there own
    conclusions. On this mendacious, bot filled Net,
    truth hides in the most interesting places.

    Often, great events take place under our noses.
    I have respect for ‘post mortem’ analysis. We learn
    from forensics. Spotting trends, before trends are directions can be profitable.
    Sometimes not.

    Since you were the only poster here to comment,
    I used your name. (in vein it seems). Since you’ve resisted my advances so skillfully, I’ll stop.

    bob inget

  28. Makati1 on Sun, 20th Aug 2017 6:22 pm 

    “Check out how peaceful makat Asia is these days:

    “Video Emerges Showing Clashes Between Indian, Chinese Soldiers””

    Check out how peaceful Davy’s America is these days:

    “Protests turned violent in Charlottesville, Virginia on Saturday, as white supremacists clashed with counter-demonstrators, and a car plowed into the crowd of anti-racist and anti-fascist protesters. … At 11:28am (15:35 GMT) a local state of emergency was declared by the City of Charlottesville and the County of Albemarle. … At 1:42pm (17:42 GMT) a speeding car rammed into anti-racist protesters, killing 32-year-old Heather Heyer and injuring at least 19 others.”

    Just one of many examples of the chaos in America and a preview of coming events. Many events. Shades of the summer of 67′.

    Yep. America is a safe place to live. NOT!

    BTW: That ‘action’ is 3,000 miles from the Ps.

  29. MASTERMIND on Sun, 20th Aug 2017 7:16 pm 


    Just face it you inhaled way to much lead in your gasoline everyday, along with everybody elese’s. And it lowered your IQ to well below room temperature. You can prep all you like but all you are going to do is put a bulls eye right on your property. And the zombies will beat/murder/eat you without the rule of law in place and a prosperous society to keep them at bay.

  30. Makati1 on Sun, 20th Aug 2017 7:25 pm 

    Muddymind, you have been shooting up too often. Go back to your guzzling of that US Koolaid/propaganda. It is all you are capable of understanding.

  31. Boat on Sun, 20th Aug 2017 9:16 pm 


    “U.S. crude oil production continued to rise and was above 9.0 million barrels per day for the sixth consecutive month”

    Since US production is at 9.5 mbpd telling readers US production is above 9 mbpd is kind of silly, ya think?

  32. MASTERMIND on Mon, 21st Aug 2017 12:31 am 


    Shouldn’t you be on breitbart or the daily stormer With all the other deplorable’s? You bloviating blathering blowhard.

  33. Makati1 on Mon, 21st Aug 2017 12:47 am 

    Childish, Muddymind. Very childish. You do know that others here will read your immature rants? I guess you don’t care. Your avatar name is a sick joke…on you. Arrogance? Immaturity? Age? Education? They will decide. Not me.

    I know what you are and you will not survive the coming collapse of everything you hold dear. I will, as I have already stepped away from that life into a better one here. 10 years and counting.

  34. MASTERMIND on Mon, 21st Aug 2017 11:41 am 


    I went to Japan once. And I got laid five times in less than a week. It was like shooting fish eyes like you in a barrel. Their woman love white bread boys like me. Sorry, its true. And once the collapse happens goons will rape your daughters and grand daughters to death in both holes.

  35. Cloggie on Tue, 22nd Aug 2017 9:21 am 

    Solar space plane in 2018:

    Perhaps for Altius his little space project?

    I went to Japan once. And I got laid five times in less than a week. It was like shooting fish eyes like you in a barrel.

    Yesterday I catched a fish of 2m long.

Leave a Reply

Your email address will not be published. Required fields are marked *