All the tremors around markets on Friday and the weekend buried the appearance of a major global oil demand estimate of the early impact of the stuttering transition away from conventionally powered vehicles to EVs in their various forms.
The International Energy Agency said that while the trimming of its demand estimates this year and next came from the vanishing impact of the demand boost (especially in China) from the ending of the pandemic lockdowns, there were signs that the uptake of EVs in China and Europe is starting to crimp demand as well.
The IEA said on Friday part of the reason for its revising down its 2024 and 2025 oil demand growth forecasts is the growing pace of sales of electrified vehicles.
The IEA cut its demand growth forecast for 2024 by around 100,000 barrels per day (bpd) to 1.2 million bpd and also forecast that demand growth in 2025 would slow even further to 1.1 million bpd.
The Agency said the main reason was the ending of the post-Covid 19 rebound, which “has run its course”, but also rising sales of EVs in Europe and China.
The standout point in the Agency’s monthly report was the observation about the growing influence of EVs (both battery-powered and plug-in hybrids).
“We’re seeing the surge in [electric vehicle] sales, especially in China and also in Europe, really taking into gasoline demand, but also in the United States,” Toril Bosoni, head of oil industry and markets division at the IEA, told CNBC on Friday.
“There has been a lot of talk about sales not increasing as much as maybe was expected, but EV sales and increased fuel efficiencies in the car fleet are lowering gasoline demand, at least in advanced economies and particularly in China.”
“Continued rapid gains in the market share of EVs, particularly in China; steady improvements in vehicle fuel economies; and, notably, efforts by Middle Eastern economies, especially Saudi Arabia, to reduce the quantity of oil used in power generation are together expected to generate an overall peak in demand by the turn of the decade,” the IEA said.
Without a steep fall in oil prices, a sudden resurgence in the post-pandemic recovery, or an acceleration in economic activity, it is unlikely that global oil demand growth will approach the levels seen in 2022 and 2023. Indeed, the pace of gains slowed substantially in the second half of 2023, and the latest data shows that the trend continued at the beginning of 2024,” the IEA said in its monthly report.
“Oil use increased by an estimated 1.6 mb/d year-on-year in the first quarter of 2024, down from 1.9 mb/d in the fourth quarter of 2023 and more than 3 mb/d during the middle of last year.
“Given that China was the last major economy to lift public health restrictions related to the pandemic and saw an abrupt economic recovery in mid-2023, this easing of year-on-year demand growth is likely to continue during 2024.”
Chinese oil imports slowed noticeably, according to Friday’s customs report for March and March quarter foreign trade to support the IEA’s reasoning.
Total crude imports for the first quarter were 137.4 million tonnes, up less than 1% from last year’s first quarter figure of 136.6 million tonnes. Imports in March totaled 49.05 million tonnes, or about 11.55 million barrels per day (bpd), according to Customs.
That was down around 6% from the relatively high 12.3 million bpd imported in March 2023 when fuel demand surged in the wake of China’s exit from harsh COVID lockdowns.
This normally would have been negative for oil prices, but with the tensions and fighting rising in the Middle East, an emerging structural change like this will be ignored.