Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • Entrepreneur ETF
    • Equity ETF
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Multi-Factor
    • Portfolio Strategies
    • Retirement Income
    • Smart Beta
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Beyond Basic Beta Channel
  2. Reasons for Optimism Regarding Oil’s Long-Term Demand
Beyond Basic Beta Channel
Share

Reasons for Optimism Regarding Oil's Long-Term Demand

Tom LydonNov 19, 2021
2021-11-19

With all the talk about renewable energy adoption, fighting climate change and getting to net-zero, some investors may be apt to think the long-term outlook for fossil fuel equities and oil demand is negative.

The opposite could prove true, and some of that proof is arriving this year as oil prices and demand are surging. Same goes for the energy sector, as it’s the best-performing group in the S&P 500. Up 34.18% year-to-date, the VanEck Vectors Oil Services ETF (OIH B+) is getting in on the act.

As the marquee oil services exchange traded fund, OIH is correlated, often intimately, to oil prices and demand. So it stands to reason that some investors might be pensive about the fund against the backdrop of soaring renewables adoption. Not so fast, according to some market observers.

“The bear scenarios reflect very rosy assumptions around the implementation and efficacy of carbon policy. Our base case is far closer to the business-as-usual scenarios for oil demand than the bearish scenarios. We project oil demand to drop from 99 mmbp/d in 2019 to 88 mmbp/d in 2050, an 11% drop or 0.4% annual decline,” writes Morningstar analyst Preston Caldwell.

The takeaways there are that, yes, oil demand will decline as more renewables projects are deployed. However, the timeline to material oil demand decreases is lengthy, and in the interim, there are bound to be periods when crude demand is robust, as is the case today. During those times, OIH could deliver for investors.

Another factor to consider is automotive demand. While transportation represents a significant percentage of consumer petroleum around the world, broader electric vehicle (EV) adoption — which will happen — is likely to be gradual.

“Still, the switch to EVs won’t happen overnight, owing to the long life of the average vehicle. For passenger cars, we expect greater demand than the bear scenarios due to sluggish efficiency gains for the remaining gas-burning cars on the road (including hybrids),” adds Caldwell.

Some other forms of industrial transportation and commerce can’t be electrified, potentially indicating that as markets reconcile increasing consumer demand for EVs, there could still be a long-term case for OIH.

“Ships and planes aren’t eligible for electrification, so the most promising route for replacing oil is using green hydrogen and its various derivatives. However, we’re skeptical that these alternatives will reach cost parity with oil even by 2050,” concludes Morningstar’s Caldwell.

For more news, information, and strategy, visit the Beyond Basic Beta Channel.

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X