Why Peak Oil Demand Is Still At Least 20 Years Away

Tesla Inc TSLA eclipsed General Motors Company GM and Ford Motor Company F to become the largest auto company in the world this year in terms of market valuation. Tesla shares are up an incredible 72.3 percent in 2017, while GM and Ford shares are down 1.5 percent and 8.6 percent, respectively.

The Long Dawn Of The Electric Car Era

Investors’ reasoning is simple: electric cars are the future. It would be hard to find anyone reasonable who would argue any differently. But even though electric cars are the future, the world’s demand for oil will continue to grow for decades down the line.

Related Link: What Is Backwardation, And Why Could It Mean $60 Oil?

Tesla may be the largest car company in the U.S., but most people don’t drive a Tesla car. In fact, nearly a decade after Tesla launched the first highway-legal, all-electric car in 2008, electric vehicles still account for only 0.2 percent of total light-duty vehicles being driven today, according to the International Energy Agency. In other words, more than nine years into the electric car era, only about 1 in 500 cars being driven today is electric.

Of course, that number is likely to rise quickly following the roll-out of the Model 3 and other competing vehicle models in coming years, but electric cars have a long way to go before they account for the majority of global automobiles.

Morgan Stanley recently predicted that electric vehicles will still only account for 50 to 60 percent of global light vehicle sales by 2040. So 23 years into the future, up to half of all vehicle sales could still be fossil fuel-powered.

But the statistic that long-term oil investors are banking on the most is that the total number of global miles traveled will triple by 2040, according to Morgan Stanley.

Tying It Back In To Global Oil Demand

If gasoline cars’ market share declines by 50 percent but total miles triples by 2040, it’s easy to see why Morgan Stanley is “surprisingly constructive” on global oil demand. In fact, the U.S. Energy Information Administration expects that peak global oil demand won’t occur until around 2040.

Of course, with global oil production rising by the day, the fact that peak oil demand is at least another two decades away isn’t necessarily a case for investing in oil stocks. However, investors that are 45 years old or older will likely be retired by the time global oil demand stops growing.

In the meantime, the long-term oil investment story will continue to be tied to supply rather than demand. The United States Oil Fund LP (ETF) USO is down 18.9 percent so far in 2017 on concerns over a persistent global crude oil supply glut.