Has oil peaked?

Unintended consequences of the green machine create opportunity for the far-sighted. Plus, the new jobs report tells us nothing, or perhaps something scary, but probably nothing.

EVs are in a race to displace combustion engines, which is good news for China, uranium-bugs, and geriatric nuclear reactors(?) Does peak employment mean that New York is turning into Japan? Is that a good thing? Finally, a special Things we read, Office No-Steady edition.

Things we think

EVs and Peak Oil

Can’t have an oil shortage if you don’t need oil

There’s a secular bear case for oil that is basically:

1. Electric Vehicles (EVs) will overtake gas cars;

2. Gas cars use a lot of gas;

3. Fewer gas cars means less gas used;

4. Less gas used means less demand for oil (i.e. current demand is “peak demand”;

5. Peak demand means no room for upside and therefore no opportunity for investors (and no need to exceed prevailing supply, because current supply is just enough).

It makes sense, insofar as #2 is definitely correct—gas for transport is ~50% of consumption.

Where it possibly makes less sense (at least in the near term) is that (1) EVs might not overtake gas cars . . . not everyone drives a Tesla; and (2) even if EVs eventually replace gas cars, people still need to drive to work tomorrow (and the next day and the next day) with their that-was-so-last-year gas cars, which will consume a lot of gas. Energy suppliers may be able to wait things out until the brave new world arrives, but energy consumers cannot. So, if you have oil to sell, you’ll be the toast of the town, for at least a little while longer.

If you want to know which jockey to bet on—the oil bears or the oil bulls—then the rate and pace of EV adoption seems like a metric to watch. If it’s quick, that’s bad news for the oilmen. If it’s slow, that’s bad news for the rest of us.

EVs straight into my veins

As it turns out, there is definitely some evidence that EV adoption is progressing pretty quickly, and can progress even more quickly.

Globally, ~10% of cars sold in 2022 were EVs—that is nearly double the number of EVs sold the year before:

It’s impressive because new car sales were down overall. Notably, the charge-leaders are Europe and China—biggish markets that are also pretty different from one another, which suggests that rapid growth isn’t necessarily an idiosyncratic phenomenon:

• In China, ~20% of car sales were fully electric (and ~26% if you include plug-ins).

• In Europe, the number was ~11% (and ~20% if you include plug-in hybrids).

• In the US, the share of all-electric was only 5.8%, but that was nearly double the 3.2% share from the year prior.

EV adoption really can take off in a hurry. The growth curve in China looks like a pretty fun thing to ski: