Peak Oil And Peak Demand Are Completely Different

Some people use the phrases “peak oil” and “peak demand” interchangeably, but the two scenarios lead to entirely different outcomes.

The biggest difference between peak oil and peak demand is that a peak oil scenario leads to much higher oil prices and havoc with the global economy. A peak demand situation, on the other hand, means plunging oil prices and a world economy that just keeps growing uninterrupted. It means no inconvenience for anyone, as we continue to happily motor along. Who needs oil when Elon Musk is going to fly down in his Iron Man suit and deliver cheap electric cars to the masses?

Fear of peak oil was likely one factor that helped keep oil prices hovering around $100/bbl for so long. Ironically, today I believe widespread acceptance of the peak demand argument is a factor in keeping oil prices depressed. Many expect that oil will soon be obsolete, and who wants to invest in oil in that case?

I believe some version of the peak demand scenario will be true eventually, but I think many of the proponents of this scenario have gotten ahead of themselves. I would argue based on the data and trends that we can observe, we aren’t likely to see peak oil demand before 2030 (assuming we don’t see peak oil first).

That means the world will need to need to keep growing oil supplies for at least another decade. This is important when some are arguing that oil demand will start shrinking in just a few years. Such a disconnect between expectations and reality can create a mismatch between oil supply and demand, which may usher in a return to high oil prices.

2 thoughts on “Peak Oil And Peak Demand Are Completely Different”

  1. I think the picture is quickly becoming more complicated. There are five or six players and much depends on what they do:

    The U.S. – oil producer
    China – an oil buyer, clean tech leader
    Russia – oil producer
    Western Europe
    All the other oil producers
    Rest of the World

    Potentially, the biggest player, the one left out of too many scenarios, is China. Maybe they’re already the biggest player.

    The critical country at the moment is probably the U.S. A year ago, the U.S. was a smarter country. Now it’s not clear what’s going to happen. Here’s the key: if jobs from fracking start to slip and if they’re not replaced in other areas, the U.S. economy may slip into recession. This may dampen both oil production and the production of clean energy. At that point, things start getting complicated with different possible outcomes.

  2. It is different math nowadays. Before oil was the only option for transportation. Now, thanks mostly to Environmentalists we have a steady push from international community to produce alternative energy and increase efficiency. It’s a work in progress, but a steady stream of technology improvements. The risk is to become complacent with cheap and plentiful oil. I don’t think this will happen. I read Mazda had a diesel cycle gasoline engine that boasted 30% efficiency gain. Consumers can change habits and utilize higher efficiency vehicles upon oil spike. Fuel is gaining elasticity in economic terms.

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