Impact of EVs a distant thought, crude oil oversupply to remain in H1 2018 – IEA analyst

LONDON (ICIS)–The impact of electric vehicles (EVs) on crude oil prices in the next five years will be almost negligible, according to a crude analyst at the International Energy Agency (IEA).

Neil Atkinson, head of the IEA’s oil markets division, also said that crude stocks will be oversupplied in the first part of 2018, despite the renewing of the deal to cut output from OPEC and non-OPEC countries.

In November, the IEA released its annual World Energy Outlook, which estimated that there will be 280m EVs on the road by 2040.

The IEA expects that this surge in EVs will lead to a displacement of 2.5m bbl/day of potential oil consumption.

However, Atkinson would not be drawn on predicting the impact of EVs on crude oil in the long term, adding that within five years the impact would be almost negligible.

“In terms of the perspective from my team [of crude oil analysts at the IEA], which only covers the next five years … the impact from EVs is very small indeed,” he said.

“But once you look further afield, the [2017] World Energy Outlook … has numbers in there [related to deployment of EVs] that are quite interesting.”

Despite the expected decline in oil consumption from the passenger vehicles industry, the IEA’s World Energy Outlook predicted a significant jump in oil consumption from the petrochemicals industry, which would somehow outweigh the impact of EVs and keep prices stable.

Change in world oil demand by sector according to the IEA’s New Policies Scenario

Commenting on the agreement between OPEC and non OPEC countries last week to extend the output cuts throughout 2018, Atkinson said that the outcome was broadly in line with expectations.

“On the assumption that the OPEC members continue to produce at the same levels as today for the rest of 2018, which is pretty much what they’ve committed to, we think that the market is going to be oversupplied in the first part of 2018, before moving into balance in the second half,” he said.

Atkinson refused to be drawn on whether the IEA believes the output cuts will continue beyond 2018.

 “That’s way too far in the future. There’s an awful lot of moving parts … new data comes along, [and] the picture [can] change from month to month,” said the analyst, pictured right.

One of the stumbling blocks that had to be discussed ahead of the extension of the output cut agreement was the worry that US producers would react by ramping up its production, thus undercutting the agreement.

Atkinson said that the recent settling of international referential Brent crude oil at approximately $60/bbl would indeed provide a stimulus to US producers.

“In fact, just the other day, we saw official numbers for US shale production in September, which showed very high rates of growth, which perhaps came as a surprise to some people,” said the analyst.

“That may well be a harbinger of what’s going to happen in the next few months because of the higher prices.”

Atkinson said that Russia was right to point out this situation, but he stressed that it is not the only country thinking that – it would be a sentiment share by most, if not all, OPEC members.

“One of the conclusions that came out of a set of meetings last week between ministers and various analysts and forecasters was that forecasting US production is very difficult,” said Atkinson.

“You have a very wide range of views out there making it very difficult to be precise.”

Interview article by Niall Swan

Top picture: A charging point for EVs in China. Source: Xinhua News Agency/REX/Shutterstock
Graph, analyst picture by IEA