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Peak Oil

Sigma Investment Counselors

January 29, 2021

The idea of “peak oil,” historically a reference to a fear that oil supply was running out, now means something entirely different.  Today, peak oil refers to peak demand, not supply.  British energy company BP has suggested that oil demand may have peaked in 2019.  Others have suggested that peak demand may not occur for another 10 years or so.

Predicting the timing and scale of the expected decrease in demand for oil is difficult.  There seems to be more agreement respecting demand for motor fuels, which are generally assumed to be declining, than for demand in other areas, particularly petrochemicals.

In any event, it appears to be quite clear that worldwide demand for oil is declining and supply is increasing through new discoveries and changes in drilling technology.  Currently, major oil producing countries have experimented with restricting supplies in an attempt to support prices.  This has proven to be difficult and only partially successful.

Investors have seen the changes in oil company values, reflecting increases in supply and reductions in demand.  Perhaps more interesting, and potentially more rewarding, has been the investment opportunities in possible successors to the internal combustion engine and the outlook for ride sharing.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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