This week’s video is part 1 (of at least 2) that will address the question of “is oil a sunset industry?” The sunset industry narrative has been driven by concerns about (1) being at or near “peak oil demand” due to so-called “energy transition” and (2) the sector being doomed to structurally weak profitability with 2022 being treated as a one-off due to Russia-Ukraine.
Our emphatic answer is “no, the oil industry is nowhere near being in its sunset phase.” Global oil demand is on-track to obliterate peak demand concerns fueled by the IEA’s infamous Net Zero by 2050 report. In contrast to that scenario which called for a 25% drop in oil demand by 2030 to 75 mn b/d versus a supposed 2019 peak of 100 mn b/d, oil demand is now on-track to rise to at least 105 mn b/d by 2028 per the IEA. As we look at the fact that the other 7 billion people on Earth are using just 3 barrels per person on average versus the 15-16 barrels per capita used by the lucky 1 billion of us that live in the United States, Western Europe, Canada, Japan, Australia, and New Zealand, we see significant scope for oil demand to rise well into the 2030s and possibly beyond. As is now a core theme of ours: the energy transition needs to transition to one that is centered around meeting the energy needs of the Rest of the World as its over-arching objective.
In part 2, we plan to address our favorable view of oil industry profitability. While we have preferred the “Super Vol” language to describe the oil macro, we have used the super cycle language to describe our outlook for sector profitability. We are most encouraged by the fact that over the last four quarters as oil prices have corrected, profitability relative to the oil price has remained structurally better than what we saw last decade. We plan to follow up on our profitability outlook in part 2 of this series after 2Q2023 earnings later in August.