What Impact Would EV Adoption Have on Oil Trading?
According to studies conducted by S&P Global, U.S. oil and liquids demand could see a significant drop of up to 25% from the 2019 consumption level, which was 20.3 million barrels per day in the United States. The extent of this decline will depend on government policies and the prevailing political landscape.
In a high adoption scenario of electric vehicles (EVs), the transportation sector, which heavily relies on internal combustion engines, could experience a demand drop of around seven million barrels per day by 2050.
The potential decrease in oil demand could have considerable implications for oil trading. For instance, a 25% reduction in open interest on the West Texas Intermediate (WTI) crude oil, which is the North American benchmark, would mean that around 450 million barrels of crude oil may not be transacted. This reduction in demand not only affects the physical crude oil market’s liquidity but also impacts the liquidity in the financial crude oil markets.
The gasoline market, mainly fueled by transportation needs, could also be significantly impacted by a reduction in demand for petroleum products. A 25% decline in open interest on gasoline contracts could result in a decrease of approximately 81 million barrels in the financial futures market.
The largest section of oil demand that will be affected is the transportation sector, with estimates suggesting that more than 70% of this sector could be impacted by the shift towards electric vehicles. Overall, it is projected that around 25% of the total oil demand in the United States will be affected.
As the demand for electric vehicles increases and regulations aimed at reducing fossil fuel usage take effect, the volume of oil traded in financial markets could also be affected. Currently, the volume of oil traded on exchanges such as the Chicago Mercantile Exchange exceeds the physical demand for oil by a significant margin.
The move towards electric vehicles is expected to continue, with the EU leading the way by attempting to phase out new internal combustion engines by 2035 and significantly reducing the number of new ICE cars produced by 2030.
In conclusion, the increasing demand for electric vehicles and the implementation of regulations to reduce fossil fuel usage will have significant consequences for the demand for petroleum and crude oil trading. This shift will likely reduce volume and liquidity in oil markets as the world moves towards a greener and more sustainable future.
