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March 3, 2014, 6:00 a.m. EST

The well is running dry for big oil

Opinion: Supply, efficiency and demand concerns weigh

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By Jeff Reeves


Last week, I mused on the death of cars and big-picture factors working against the auto industry, including urbanization and declining driving rates in younger Americans.

Now, I’ll trot out my crystal ball again and offer you another prediction: This is the beginning of the end for Big Oil, too.

Now before you jump down my throat for trolling you again with hyperbole, I will state up front that I don’t expect Exxon Mobil /zigman2/quotes/204455864/composite XOM +2.52%  , BP /zigman2/quotes/207305210/composite BP +1.30%  and Chevron /zigman2/quotes/205871374/composite CVX +0.74%   to disappear tomorrow any more than I expect I-95 to start sprouting daisies.

But as with the decline of automobile ownership — and in part because of it — we may also be witnessing a protracted decline in major energy stocks and fossil fuel demand.

That’s bad for big oil, and bad for investors in these stocks.

Efficiency and alternatives sap demand

The first big reason big oil is in trouble: Oil demand keeps dropping.

Technology continues to help us do more with less and implement cleaner alternatives to crude oil.

Consider that U.S. oil demand fell to a 16-year low in 2012 despite energy-hungry gadgets and the addition of some 40 million people to the total population.

U.S. Energy Information Administration

Also consider that fuel oil demand was the lowest on record in 2013 and has been steadily declining since the 1970s as the energy source has fallen out of favor for cleaner, greener options.

It’s not just the U.S., either. Even with a bullish outlook for the global economy fueling oil demand this year, the IEA has boosted consumption targets a meager 1.3% as efficiencies in the West offset faster-growing demand in emerging markets.

However you slice it, global crude oil appetites simply aren’t what they used to be. Even energy-hungry emerging markets aren’t making up for the weak demand in the developed world.

The easy supply is gone

I don’t pretend to know when supplies in the ground will run out, or whether we are truly living after the era of “peak oil.”

But one thing is clear: Oil production is getting much more costly as easy-to-access fields are drilled dry, and new production is reliant on more difficult and costly extraction for the fossil fuel.

Take the shale oil boom. Margins are lower thanks to the cost of production. The story is the same for oil sands production , same for offshore drilling, same for oil in Africa as opposed to oil in Canada.

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$ 86.10
+2.12 +2.52%
Volume: 10.80M
Sept. 27, 2022 2:51p
P/E Ratio
Dividend Yield
Market Cap
$350.00 billion
Rev. per Employee
$ 27.62
+0.35 +1.30%
Volume: 10.39M
Sept. 27, 2022 2:52p
P/E Ratio
Dividend Yield
Market Cap
$86.08 billion
Rev. per Employee
$ 142.01
+1.05 +0.74%
Volume: 6.71M
Sept. 27, 2022 2:52p
P/E Ratio
Dividend Yield
Market Cap
$275.92 billion
Rev. per Employee
1 2
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