Many investors have heard about peak oil, the theory that argues that at some point in this century, perhaps as early as 2020, global oil production will peak, setting off a period of scarce oil supplies, and large increases in the price of crude, among other ramifications. There are camps that disagree and say peak oil is either very far away, or that it will never occur. However, Daniel Yergin's Cambridge Energy Research Associates (CERA), one of the most respected research firms in the energy industry, says there's another peak that will require adjustments: peak oil demand.
CERA forecasts that all of the demand lost in the developed world in the global recession is unlikely to return, even over the long-term, and that 2005 could represent the peak year for developed world oil demand. CERA defines the developed world as countries in the Organization for Economic Cooperation and Development. Oil traded Friday at mid-day down 36 cents to $80.76 per barrel.
CERA says demographic and socioeconomic changes (including aging populations), improved transportation efficiency, and substitutes such as natural gas and biofuels, will all weigh on developed world oil demand.
The benefits of the above would include: 1) (potentially) less long-term upward pressure on oil prices, 2) OECD economies less susceptible to oil price shocks, 3) increased energy resilience/independence, and 4) the shutdown of less-competitive oil refineries.
Energy Analysis: Concerning the United States, oil shocks do tend to shift the behavior of Americans: when gasoline prices remain at high levels, Americans have (obviously) shifted to more-efficient vehicles. Concerning recent shocks, the $3 per gallon level seems to have been a tipping point for U.S. drivers: drop the price to $2, and Americans resume driving with abandon; push the price above $3, and they conserve. What would a $4 per gallon 2010 price do? Undoubtedly it would reduce demand even more, and that would further lower developed world oil demand.
Even so, the demographic component is significant in the CERA forecast: the developed world is aging, and historically, citizens drive less after age 40 than in the young-adult years. Most likely, peak oil demand has occurred in the developed world.