Will electric vehicles drive a slump of oil demand?

Oil demand near its peak?

Will the long-running rise in global oil demand soon come to an end? At least the International Energy Agency (IEA) thinks so. In its recently published medium-term outlook “Oil 2024” , it predicts that oil consumption will fall from the end of this decade. This is a significant change in its expectations. Five years ago, in its longer-term World Energy Outlook , the agency still assumed in the main scenario based on the political measures implemented up to that time that global demand for oil would continue to rise until 2040. Only in the so-called sustainability scenario, in which more stringent environmental measures were assumed, did it expect an earlier turning point.

The IEA considers that demand in Europe and North America has long passed its peak. In contrast, consumption in the other regions will continue to rise for the time being, although the increase will level off from 2027 onwards, meaning that global oil demand is expected to reach its peak at the end of this decade.

E-mobility slows demand for oil, ...

The main driver of global oil demand over the past three decades has been the transportation sector, which now accounts for almost two thirds of demand. This increase is now set to come to an end. Improved fuel efficiency in internal combustion engines, which has already been observed in recent years, is expected to contribute to this. The IEA estimates that global gasoline consumption per kilometer in passenger cars fell by 11% between 2000 and 2021.

These efficiency gains have so far been partially offset by the increasing number of cars, especially as there is also a clear trend towards larger cars. While these efficiency gains are expected to continue, they will be amplified by a rapidly growing share of electric vehicles (EVs). In fact, their sales figures have recently risen significantly: While just 3 million EVs were sold worldwide in 2020, last year, just three years later, this figure had already risen to 14 million. That equates to one in five new cars.

There are some indications that this trend will continue. In the EU at least, a significant rise in the carbon price is likely to make gasoline and diesel, and therefore the use of a combustion engine, increasingly expensive. At the same time, the disadvantages of EVs are likely to diminish. The range of EVs has already increased significantly in recent years and further advances in battery technology are expected in the coming years. The charging infrastructure is also likely to be further extended. In addition, EVs are likely to become cheaper in relation to conventional cars over time, and a broadening of the model range and a larger selection of smaller cars could ensure greater acceptance, especially in emerging markets. Last but not least, there are likely to be repeated government subsidy programs for EVs.

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