OPEC Going Into A Death Spiral, And EVs Are To Blame

Saudi and OPEC officials seemingly do not believe their own claim that world oil demand will continue to grow robustly for another generation, as if electric vehicles had never been invented and the Paris Accord never existed, as argued in an opinion piece by Ambrose Evans-Pritchard for The Telegraph.

EVs are on track to represent 60% of total car sales in the world's largest car market within two years.

OPEC had to significantly reduce its output last October to support oil prices. It had to make further cuts in April.

In June, the Saudis surprised traders with a unilateral reduction of one million barrels a day (bpd). In total, the OPEC-Russia cartel has had to remove 2 million bpd from the market during a high point in the economic cycle.

Coincidentally, this 2 million bpd happens to be the volume being displaced by electric vehicle (EV) sales worldwide.

However, the mood at the 24th World Petroleum Congress in Calgary this month was one of defiance and optimism. Saudi Aramco chief, Amin Nasser, stated that talk of peak oil demand is "withering under scrutiny."

He predicted that consumption would increase from 102 million bpd to 110 million bpd by 2030 and continue to rise until 2035 before stabilizing at a high plateau through mid-century.

This perspective overlooks the fact that EVs are on track to represent 60% of total car sales in the world's largest car market within two years. The cartel is facing pressure from two directions.

Gasoline and diesel cars are becoming more fuel-efficient, gradually replacing 1.4 billion older models that are heading to scrapyards. BP suggests that this alone could reduce global oil demand by up to 10% by 2040.

"Personally, I had assumed that there would be one final supercycle for oil over the early to mid-2020s, with prices reaching $150 to $200 as stubborn demand clashes with a 10-year drought in upstream investment. However, this scenario has been overshadowed by the rapid pace of global electrification. The decline of oil in car and bus transport may be closer than almost anyone imagined. OPEC, as we know it, may be on the cusp of a death spiral," concluded Evans-Pritchard.

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