Two weeks ago, oil markets reacted negatively to OPEC+'s decision to unwind 2.2M bbl/day in voluntary production cuts later this year, with oil prices tumbling to multi-month lows. Standard Chartered pointed out that the selloff was an overreaction triggered by a combination of several factors including extreme macroeconomic pessimism, speculative shorts, and over-enthusiastic algorithmic trading that crowded out more fundamentally-based traders. Thankfully, oil prices have largely corrected to their previous levels before the OPEC+ announcement, with StanChart predicting we are likely to see significant deficits in oil markets in the latter part of the year.
Not everybody is that sanguine, though. Citi has warned that energy stocks are likely to sell off in the fourth quarter and that oil markets will record "Small inventory draws in Q3 2024, but continued builds from Q4 2024 onwards." Citi sees non-OPEC supply growth increasing more than global demand growth in 2025, and the upcoming U.S. presidential elections as a potential bearish catalyst.
The International Energy Agency largely concurs with Citi's bearish outlook. In its June 12 Oil Market Report (OMR),, the Paris-based energy watchdog has predicted that world oil demand growth will continue to slow down, with 2024 growth now seen clocking in at 960 kb/d, 100 kb/d below its May forecast.
The IEA has reported that global oil supply rose by 520 kb/d in May to 102.5 mb/d, in large part due to a seasonal surge in Brazilian ethanol output. According to the IEA, global oil supply for the entire year will increase by 690 kb/d, with a non-OPEC+ gain of 1.4 mb/d partly offset by a 740 kb/d fall by OPEC+ supply if voluntary cuts are maintained. The IEA has forecast that global supply in 2025 will increase at an even faster clip at 1.8 mb/d, with non-OPEC+ output increasing by 1.5 mb/d. IEA has also published its annual medium-term oil market, adding forecasts for 2029 and 2030.
According to the IEA, global oil demand will peak right at the end of the current decade, with 2030 demand coming 140 kb/d lower than 2029 demand. The IEA has predicted that EVs will displace 6 million b/d in global oil demand by 2030 and 11 million b/d by 2035 based on current policies.
The IEA tends to be more bearish than most energy agencies as far as long-term oil demand is concerned. However, this time someone has beaten it to the punch, with Bloomberg New Energy Finance (BNEF) predicting last year that global demand for road fuel will peak in 2027 at 49 million barrels per day before entering terminal decline thanks to faster adoption of electric vehicles, ever-improving fuel efficiency and shared mobility. According to BNEF, EVs will displace a staggering 20 million barrels per day in oil demand by 2040, or 10x the current level.
Oil bulls can, however, take some comfort in the fact that extreme bearishness about the future oil does not cut across the entire Wall Street fraternity. In a paper titled Peak oil demand is not imminent, StanChart has forecast a less marked flattening of demand, with demand in 2030
clocking in at 110.3mb/d, nearly 10 mb/d higher than current levels and 4.8 mb/d higher than the IEA number. The analysts, however, concur with IEA's view that the rate of EV adoption and the general health of the global economy will play a big role in determining the oil demand trajectory.
With the year at the midpoint, the EV boom shows no signs of slowing down. EV sales globally has now hit 18% of all new vehicle sales, with BEV sales up by 14% YoY in April, while plugin hybrids jumped 51% YoY. A big driver of the EV megatrend is falling costs, with Tesla Inc.'s (NASDAQ:TSLA) most affordable model now cheaper than its ICE peer, "The Model 3's starting price is now $6,500 less than the cheapest BMW 3 Series, which is often seen as the Tesla sedan's most direct gasoline-powered competitor," Bloomberg has noted. Meanwhile,
Gartner has predicted that EVs will be cheaper to produce than ICE vehicles of the same size in three short years, thanks in large part to improvements in manufacturing methods with production costs dropping faster than battery costs.
"New OEM incumbents want to heavily redefine the status quo in automotive. They brought new innovations that simplify production costs such as centralized vehicle architecture or the introduction of gigacastings that help reduce manufacturing cost and assembly time, which legacy automakers had no choice to adopt to survive," Pedro Pacheco, vice president of research at Gartner, has said.
By Alex Kimani for Oilprice.com
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Comments
The reason is that the IEA' and other forecasters are basing their forecasts on the flawed assumption that rising numbers of EVs will lead to a steep decline in global oil demand thus causing it to peak before 2030.
Well EVs are neither rising in big numbers despite huge government subsidies nor are they going to cause a steep decline in oil demand. They are a fad and fads are by definition short-lived.
Another reason is that OPEC+ which is the most astute reader of market trends and the most accurate forecaster is projecting an oil demand growth of 2.2 million barrels a day (mbd) in 2024 with global demand rising to 110.0 mbd by by 2028 and hitting 116 mbd by 2045.
Oil is here to stay and will continue driving the global economy well into the future.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert