The Dow Chemical Company (DOW), Navistar International Corp (NAV) & More: Why Global Oil Demand Could Soon Peak

Improving fuel economy
The second major factor that points to a peak in global oil demand, according to Citigroup, is improving fuel efficiency among new vehicles. According to Citi’s estimates, fuel efficiency among new cars and trucks is improving at an annual rate of 3%-4% and 1%-2%, respectively. Combining the two, the bank suggests new vehicles’ fuel economy is improving by around 2.5% every year — an estimate it deems conservative.

Since the U.S. passed the Energy Independence and Security Act of 2007, which enforced higher Corporate Average Fuel Economy standards, vehicle fuel efficiency has improved drastically. The trend also appears to be catching on in other parts of the world, with the European Union, Japan, and Canada having passed similar mandates.

Though Citi acknowledges the slower pace of fuel economy improvements for the global fleet of light-duty vehicles, which was just 1.8% per year over the period 2008 to 2011, it expects more drastic improvements going forward. In the coming years, it forecasts annual LDV fuel economy improvements in the range of 3%-4%, as key emerging countries, especially China, place a greater emphasis on fuel economy.

Citi’s bold conclusion
Though it’s hard to argue with the broad trends Citigroup highlights, you may be shocked by its conclusion that “by the end of the decade Brent prices are likely to hover within a range of $80-90/bbl.” These projections are a sharp departure from mainstream views, which suggest that oil prices will continue to march higher over the remainder of this decade, led by rising demand from emerging economies and buoyed by the high marginal costs of production for unconventional oil.

In fact, the Organization for Economic Cooperation and Development recently said oil prices could rise to between $150 and $270 per barrel by the end of this decade, led by emerging-market growth.

What do you think? Will emerging-market demand outweigh fuel efficiency and other improvements, driving oil prices higher? Or will the shift to alternative fuel sources drastically reduce the global economy’s dependence on oil?

The article Why Global Oil Demand Could Soon Peak originally appeared on Fool.com.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels, Cummins, and Westport Innovations (NASDAQ:WPRT) and owns shares of Citigroup, Cummins, and Westport Innovations.

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