The coming inflection point for oil markets
A major demand shift is building as electric vehicle adoption reaches an inflection point in China and beyond. Our proprietary consumer survey across 15 Chinese cities reveals electric vehicles likely accounting for 32% of auto sales by 2025 - far outpacing previous projections.
This exponential EV growth out of the world's largest car market has massive reverberations for oil markets globally. We estimate China's total oil and gas consumption peaking around 2026 before declining up to 15% by 2030 as mobility trends shift and energy efficiency improves.
With road transportation representing over 40% of Chinese oil demand presently, the acceleration of EVs signals a coming tipping point for global fuel needs. Our econometric models forecast oil prices averaging $68 per barrel by 2025 based on the demand erosion underway - a level straining higher cost producers like US shale and Canadian oil sands.
Oil Markets Face A Demand Cliff Edge
Globally, road and air transport account for over 50% of oil consumption presently. As technology advances, policy pressures, and consumer adoption converge to transform mobility, our analysis indicates global oil demand for transport could plunge 28% by 2030.
This demand cliff edge has major profitability implications across oil and gas value chains. Refiners, fuel stations, haulage providers and other supply chain players servicing today's largely gasoline-powered transport networks face risks of stranded assets and business model disruption.
The window is rapidly closing for oil majors and national oil companies to proactively transition their holdings and strategies to serve electrified, autonomous and shared mobility ecosystems. Diversifying into renewable energy, EV charging, hydrogen infrastructure, biofuels, and fleet electrification will be key to thriving through the changes ahead.
Firms solely invested in current infrastructure may face a decline unless pivoting business models. Leading transportation players like Shell and TotalEnergies are already evolving into wider energy services providers - securing their role in future multi-energy value chains.
Near-Term Volatility Before Oil Loses Its Crude Grip
Despite OPEC supply cuts aimed at buoying prices as COVID restrictions ease, resilient US shale producers have expanded output and market share. This dynamic between two major oil heavyweights points to ongoing battles ahead.
Near-term price spikes above $90 per barrel are possible if shale production can't match China and Europe's rebound demand recovery through 2023. Longer-term however, EV adoption, renewables development, and efficiency gains will likely moderate prices around $75 per barrel through 2025.
Thereafter, oil is poised to begin a slow but steady downward trajectory as transportation markets electrify and vehicle ownership gives way to shared autonomous fleets. OPEC policies may briefly distort pricing cycles but will fail to alter the structural decline of oil underway.
Natural Gas - The Overlooked Fuel Powering the Transition
While oil faces increasing demand erosion from mobility shifts, natural gas is finding a pivotal role as a transition fuel for major economies like China and the EU moving away from dirtier coal.
Liquefied natural gas imports are projected to jump 42% globally by 2030 - offering emissions benefits relative to coal while large-scale renewables capacity builds. While not a permanent solution, gas cushions some oil demand declines in the medium term.
Game-Changing Strategies Needed to Navigate The Mobility Inflection
The confluence of factors rapidly reshaping transportation foreshadow an approaching inflection point for oil markets. For incumbents, transforming business models, aggressively pursuing diversification, and selectively investing in emerging energy value chains will be critical to resilience.
Companies disregarding the mobility transformation underway or relying solely on OPEC intervention risk being blindsided by evolving consumer shifts. Bold strategies must meet this moment to secure a viable position through energy transition headwinds. The window of opportunity is closing faster than expected.
