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Tsvetana Paraskova

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Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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China's EV Plan Could Cause An Oil Price Crash

EV

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.

By Tsvetana Paraskova for Oilprice.com

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  • Dr cyril widdershoven on November 29 2017 said:
    Nice piece, very optimistic about EV. Just introduction and state-led enforcement will not put it totally in place. Have a look at renewables, when looking at total percentage of renewables in total energy volumes worldwide, still not very impressive, even with multibillion programs. With EVs, the most interesting issue will be that these companies are making a loss on them, look at Tesla. At same time, most of it is based on subsidies, which looking at Europe will end and cause EV market to get dented extremely. Also, with 40% less action radius than claimed, total impact will still be less than expected. 40% shorter driving distance on their storage caps, this will mean more electricity is needed, aka a call again on fossils, as the rest is normally not available, due to storage (night) or capacity. Will have to see what really will go on, China and India will enforce, but consumers not able to pay. Indian-Chinese cars are also not wanted, not even by their own people.
  • david on November 29 2017 said:
    wow. 2018 and $35.00 per bbl. I don't even know where to begin.
  • JustMeNS on November 29 2017 said:
    Steen always makes bold statements. I looked up his last December's bold statement and maybe 1 of 10 came close. It gets him a headline though. We are many years before EV takes off. Check Peter Tertzackian for a thorough discussion on this topic. Anyone that wants to sell me oil for $35.00/barrel next year, I will buy and immediately resell at a $30.00 profit.
  • Josh Gregner on November 29 2017 said:
    We don't need that much, to disrupt the oil sector substantially: about 1% to 1.3% of the total oil demand is fine to stop the growth in demand.

    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...
  • shelly on November 29 2017 said:
    Please those two countries have horrible power grids & there is no way they can improve their power grids enough to Sustain all the electricity needed to charge all those cars.
  • Kr55 on November 30 2017 said:
    step one for both of those countries is to get off coal power, which they are making minimal progress at. It's proven pretty clearly that EV's actually create more harmful polution than modern gasoline powered cars in situations where the EV is being powered by dirty coal plants.
  • Marcus Rönningås on December 01 2017 said:
    @Kr55: Thankfully China is ramping up renewables and scaling down coal. 2016 China's electricity mix was 57 % coal - which is a lot - but renewables was up to 34 % and growing.

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