Oil prices could decline to $35 a barrel next year if China and India speed up the adoption of electric cars to cope with severe pollution, Steen Jakobsen, Chief Economist & CIO at Saxo Bank, told UAE’s news outlet The National in an interview published on Wednesday.
“I think down the road, this whole electrification which is a big issue in 2018 will really kick off,” Jakobsen, who is known for making bold predictions, told The National in a phone interview.
“The reason I think it will be big is that the single biggest issue in China is pollution and a way to deal with it is to get electric cars. On top of that, India has a similar problem,” Jakobsen noted.
Earlier this year, China and India unveiled plans to dramatically accelerate the adoption of EVs, which has prompted the IEA to take notice and promise a review of its long-term oil demand forecast.
Also this year, the EVs market became crowded with Tesla’s new unveils, along with the legacy automakers and truck makers who announced big investments and shifts to more electric car production—including Ford and GM. Earlier this month, Ford signed a deal in China to establish the 50/50 joint venture Zotye Ford Automobile Co Ltd that will offer a range of stylish and affordable all-electric vehicles for consumers in China.
Earlier this week, Shell entered into a partnership with a consortium involving some of Europe’s largest carmakers to build a network of EV fast-charging stations across the continent. Initially, the charging stations will be installed at 80 highway Shell sites, beginning in 2019.
Related: 54 Things You Didn’t Know About Natural Gas
Saxo Bank’s Jakobsen told The National, referring to India and China:
“The two most populous nations in the world will lead the charge towards electrification and as that happens investment into batteries and alternative energy will explode because this is going to be the single biggest concentration of growth in one sector since the internet. If you get better batteries, you reduce the demand for fossil oil.”
Jakobsen’s prediction for 2018 is bold, compared to most analysts who see oil prices at $40 to $60, although there are some projections that the price of oil may hit $80 next year.
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By Tsvetana Paraskova for Oilprice.com
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Of course in absolute terms 1m bpd is still a massive amount of oil. So current oil demand predictions rely on growth in India and China as OCED countries are already in decline with their oil demand.
So will China tip the scale in 2018? We will see. I'm not convinced just yet. The aggressive EV mandates only go into force 2019. But then there were already more than 100.000 electric busses sold in China in 2016. I expect that to go much more this year and of course - as car makers are getting ready for their EV mandates in a year - EVs might make a first showing. What will tip the scale is, once heavy duty trucks are electrified. So a BYD version of the Tesla Semi could end oil demand growth very quickly.
Will that happen in 2018? We will see. Will the world know about this in 2018? We will see. Is it possible? Absolutely! Will oil go down to $35? Who knows... But with battery prices collapsing, EV mandates tightening and China seeing EVs as their final shot at a global car market? I would not want to be long in oil right now...