- Morningstar researchers said crude oil supply will decline rapidly without more investment.
- They said reports of “oil demand’s death” have been exaggerated.
- By 2050, Morningstar expects oil demand to drop to 88 million barrels per day, from 99 million in 2019.
Will we see peak oil demand soon?
Not exactly, according to Morningstar. Without adequate investment in the sector, supply and dynamics could turn severely lopsided.
In a February report, researchers said recent predictions of “oil demand’s death” have been greatly exaggerated. They forecast oil demand to decrease to 88 million barrels a day by 2050, down from the 99 million barrels a day seen in 2019 — about an 11% decline.
“That’s less of a decline than some may expect,” the Morningstar team wrote. “We’re optimistic on EV adoption, which will slash road fuel demand, but not every component of oil demand can be electrified.”
Morningstar’s forecast is below the consensus estimates, but above the bear case, as illustrated in the chart below.
Morningstar
The figures are based on Morningstar’s forecast for electric vehicles to account for 57% of all vehicles by 2050, and the adoption of EVs for freight trucking.
Notably, however, the firm doesn’t forecast widespread adoption of substitute fuels for ships and planes, given their high prices.
More investment is needed
In Morningstar’s view, crude supply will suffer and demand will outpace existing capacity without sufficient investment in the space.
Most oil projects reach their highest productivity within their first several years before gradually or rapidly falling off. Producers, in turn, must constantly drill, create new projects, and explore new fields just to maintain production levels, let alone expand.
“Output from currently producing wells will drop off quickly,” researchers said, “so without further investment in new wells, supply will fall far short of demand, even in the most extreme fast-transition scenarios.”
In effect, oil production requires a lot of capital and time to operate. If those resources falter, so too will the supply of energy.
Looking past 2030, Morningstar’s forecast suggests the world will start to run out of low-cost energy, and higher crude prices will come into play.
“The crux of our thesis is that the widening gap can be addressed without stratospheric crude prices,” the researchers maintained. “Producers, particularly in the U.S., are more committed to capital discipline, and few OPEC countries (other than Saudi Arabia) have meaningful spare capacity. But even after factoring this in, we still see adequate resources.”
JPMorgan, for its part, does not expect peak oil demand to arrive in this lifetime. Demand growth for emerging markets has proved stronger than expected, and that will keep pushing back on the narrative for peak demand, according to commodities strategist Christyan Malek.
Meanwhile, the International Energy Administration’s executive director Fatih Birol has said fossil fuel demand is set to hit its peak this decade.
