Electric Vehicles Pose Long-Term Threat to Oil Prices
With widespread travel restrictions and lockdowns grinding economies to a halt amid the pandemic, global oil demand has taken a hit, but is this the only problem looming for the oil industry? Likely not. The emergence of new values supporting green energy threaten to completely upend global oil demand. The biggest threat? Electric vehicles (EVs).
Growing trends towards battery and solar power
Specialists have stated that the oil industry is just as sensitive as other industries to business cycles, but the inevitable increase in battery and solar-powered vehicles could hinder oil’s worldwide demand permanently. Major players in the auto industry, such as Tesla, have already made huge strides in manufacturing and commercializing EVs. But the ongoing issues associated with COVID-19 has pushed other big companies in the same direction, such as General Motors and Hyundai. As reported by Reuters, General Motors (GM) has seen a considerable increase in the value of its shares since the company entered the EV business and has even made vehicle supply deals with FedEx. GM has also seen an uptick in sales in their China market. Other reports indicate that Hyundai Motor in South Korea has been in contact with Apple to develop and manufacture EVs with autonomous driving features.
Growing oil inventories
The momentum in the electric vehicle industry is likely to continue on for the foreseeable future and EVs seem to be here to stay. Given that outlook, oil prices are likely on a long road to recovery. The US Energy Information Administration (EIA) has cited excess oil supply worldwide, stating that about 625 million barrels of crude are currently sitting in storage. The IEA also noted that it could take the economy a year to burn off the excess inventory, citing low demand projections and mismatched OPEC output. Oil prices reached historical lows last year, almost breakeven prices. And the current excess supply makes it nearly impossible for oil producers to recover their pre-pandemic values – even long term.
A balanced outlook
The future of oil prices is not bright, but a modest recovery is on the horizon. Many industries still depend on oil fuels and as economies slowly open back up, so too will demand for oil energy. As the electric vehicle industry remains in its infancy, firms worldwide will continue to rely on oil as EV technology and infrastructure develop.
For now, the primary driver in oil prices’ short-term course is the pace at which COVID-19 restrictions ease. Long-term, EVs will take the wheel as the world goes toward a greener destination.
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