Will electric cars shock oil prices?

Global oil demand is expected to peak in 10 years, leading to a drop in oil prices, given the breakneck pace at which electric vehicle revolution is poised to transform the transportation landscape, analysts said.

A study by Bank of America Merrill Lynch forecasts that pure electric vehicles would achieve a global penetration of 12 per cent in 2025, 34 per cent by 2030 and 90 per cent by 2050.

Christopher Kuplen, BofAML's research analyst, argues that since 55 per cent of global oil is consumed in transportation, of which more than half by passenger vehicles, the demand for oil would eventually fall.

Some analysts even predict that with oil demand declining as electric vehicles are set to replace conventional fuel vehicles, prices could tumble to as low as $10 a barrel over the next six to eight years.

Chris Watling, CEO and chief market strategist at Longview Economics, was quoted as saying that the adoption of electric vehicles could lead to global peak oil demand as soon as 2023, which will result in oil prices dropping to $10.

Watling said he didn't see oil falling in the short term but in the long term it could decline to $10 somewhere around 2023-25.

"The world did not live on oil 120 years ago. Oil has not always driven the global economy. the point is alternative energy in some forms is gathering speed and things are changing," Watling said.

The price of oil tumbled from almost $120 a barrel in June 2014 to $52 per barrel due to weak demand, a strong dollar and booming US shale production.

Some of the world's biggest oil traders say crude could rise above $60 a barrel in a year as demand grows and Opec keeps cutting. Or it might fall to $45 as another wave of US shale hits the market.

The International Energy Agency said the global outlook for oil markets in 2018 could put a dampener on hopes for higher prices. China, seeking to be a top electric vehicle manufacturer and exporter, aims to produce seven million such vehicles per year by 2025, and will spend upwards of $60 billion on subsidies between 2015 and 2020. The potential phase out of gasoline and diesel vehicles in China will also dramatically alter the trajectory for electric vehicles, say analysts.

Although electric vehicles only make up a small fraction of the auto market, more and more analysts are starting to buy into the notion that they will quickly gain a foothold over the next decade or so, with massive ramifications for the oil market.

For 2018, the International Energy Agency (IEA) expects the ongoing production gains from non-Opec countries to probably act as a "the ceiling for aspirations of higher oil prices", despite the fact that now everyone acknowledges that the global oil market continues to make progress toward rebalancing.

According to BofAML, should electric vehicle sales rise towards 50 per cent by 2050, total global oil demand would peak at 105 mbpd by 2030.

In this scenario, oil demand would decline by 0.10 per cent per annum on average in 2030.

In a more extreme scenario where electric vehicle sales rise to 75 per cent by 2050, oil demand would peak by 2030 and then decline 0.20 per cent per year on average in 2030-50.

Kuplen said global electric vehicle adoption is at a tipping point due to a confluence of increasingly supportive factors: improved electric vehicle range (383km in the US, 247km in the EU), declining powertrain costs ($16,201 to $11,889 from 2016 to 2020), still supportive subsidies, electric vehicle sales targets by China, falling diesel sales/residual vehicle pricing and reduced charging infrastructure concerns.

Source: Khaleej Times