As oil prices continue to rise and global demand is bouncing back to pre-pandemic levels, people could be buying into electric vehicles (EV) as an alternative to expensive fuel costs.
The International Energy Agency (IEA) says that rising oil prices are expected to encourage people to shift away from traditional vehicles and increase the uptake of EVs. However, this could be detrimental to the recovery of the global economy.
With oil prices hitting $77 a barrel this July, due to higher demand and OPEC+ production cuts aimed at raising the benchmark price of oil, the threat of ever-increasing fuel prices is worrying for consumers who are still overcoming the economic hit of the pandemic.
The IEA stated of the situation, “While prices at these levels could increase the pace of electrification of the transport sector and help accelerate energy transitions, they could also put a drag on the economic recovery, particularly in emerging and developing countries.”
As the vaccination rollout is accelerating across the globe, restrictions are easing, and road and air travel are picking up over the summer months, global oil demand is expected to continue to rise throughout 2021, to hit pre-pandemic levels of 100 million bpd by 2022. In fact, in some areas of the world such as China and India, oil demand is expected to exceed pre-pandemic levels, as the oil need across the region will continue to rise over the next decade.
The IEA has warned OPEC+ that if it does not reduce cuts to resume normal production across member states, in line with the global demand increase, this could lead to economic instability due to rising fuel prices worldwide.
However, at present, production levels are being increased slower than expected by OPEC due to challenges in organizational talks, with disputes between the UAE and Saudi Arabia around production increase levels. OPEC+ is currently expected to increase production across member states by around 400,000 bpd in August.
This report builds upon the Ernst & Young AI analysis from June that stated the EV boom is coming much earlier than anticipated, with EV sales expected to surpass those of traditional vehicles by 2033. Particularly as several countries across Europe, such as the U.K., are planning a ban on the sale of petrol and diesel vehicles from as early as 2030 as part of the clean energy transition.
With many major companies backing EVs, with Amazon, the United States Postal Service, and United Airlines all announcing new EV fleets, while Ford, Volkswagen, and General Motors (GM) increase investments in EV production, electric vehicle and EV related stocks are set to soar this summer.