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EVs not yet a market force to disrupt oil demand growth

19th April 2018

By: Anine Kilian

Contributing Editor Online

     

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Short-term oil demand is still growing strongly and will continue to do so through the end of 2020, a trend taking place despite the market’s increasing focus on electric vehicles (EVs) and the forecast future plateau in oil demand, according to a new report from IHS Markit’s oil and gas team.

Refined product demand growth has averaged 1.2-million barrels a day over the last five years, and current global total liquids oil demand growth is at similar levels to what was recorded during the 2003 to 2007 commodity super-cycle, referred to as the ‘golden age‘ of refining.

At present, current global total liquids oil demand is about 100-million barrels per day, the report says.

With economic growth robust, and prices still under pressure, indications are that the current strong global refined product demand growth will continue through to the end of 2020, averaging 1.1-million barrels a day, each year, during the period.

IHS Markit expects global gross domestic product to grow by 3.4% in 2018 and 2019, respectively, owing to convergence of robust economic activity in many markets around the world.

“Although EVs are making headlines, they are not yet a market force to replace the internal combustion engines that power today’s automotive fleets, so oil demand is currently growing strong,” head of global short-term refining research Spencer Welch said in a statement.

He points out that, although EVs have the potential to disrupt the energy and automotive sectors in the longer term, they currently make up about 1.5% to 2% of total global vehicle sales, and account for less than 0.5% of the global vehicle fleet, so their influence on the oil market, in the short term, is limited.

The IHS Markit report compares the current oil demand growth surge to demand levels during 2003 to 2007, and identifies underlying significant differences between the two cycles.

“There are key differences between the oil market today and the oil market in 2003 to 2007, which is important when we seek to assess how sustainable this demand growth cycle is as compared to the past,” says Welch.

He adds that demand growth now is currently more widely distributed, with the Organisation for Economic Cooperation and Development region and natural gas liquids (NGLs) contributing more to global oil demand than during 2003 to 2007.

The diversity of demand, both geographically and in terms of product mix, is an important factor, IHS Markit says, in determining the sustainability of the current cycle, which is key to keeping the oil market in balance, and supporting prices.

Another key consideration for total liquids demand, Welch says, will be to determine how long NGLs will provide unusually firm support to oil demand growth.

Increasing upstream activity in North America will support continued growth of NGLs as a pillar of demand.

“Looking forward, we expect a continued reduction in energy intensity to gradually offset the factors currently supporting demand growth. Several growth drivers, notably in EVs and fossil fuel regulation, have developed rapidly during the past year and will continue to do so during 2018 and 2019.” 

The period of strong oil demand growth from the commodity super-cycle of 2003 to 2007 was ended by the 2008 global recession, the worst global recession since the Great Depression of the 1930s, but Welch is not envisioning a similar end to this particular cycle for oil demand.

”The current strong cycle of oil demand growth is more likely to gradually ease than to crash, providing ongoing short-term support for global refining margins.”

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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