Oil prices will move like a roller coaster

Right now oil is flowing freely and prices are falling. Image: Shutterstock

Demand for oil is falling as producing countries expand capacity. The oil industry is on the brink of what could be a turbulent shift.

Niklaus Vontobel / chmedia

The world is about to experience an oil spill the likes of which have never been seen before, except during the Covid emergency, the International Energy Agency (IEA) writes in its new oil report. The rising tide is expected to build steadily from 2025 and reach its peak in 2029. This will drive down the price of gasoline – but it would only be the beginning.

This abundance is due to two contradictory trends:

  • Producing countries are developing their capacities ambitiously
  • On the other hand, demand is not increasing, it is stagnating.

Behind this weak demand, the IEA sees above all the success of electric cars. They are spreading rapidly on the roads all over the world and thus initiating a change that, according to experts, will be “not linear” – in other words, we are heading towards turbulence.

The rise of electromobility

Historically, transportation has been the mainstay of global oil demand. But with electric cars, much of the demand for road transportation is collapsing, as the IEA has calculated. As always, when new technologies take hold, things move forward slowly at first, then quickly.

In 2024, 17 million electric cars will already be sold worldwide, which is more than 20% of all car sales. By 2030, it will be 40 million, so not quite, but almost three times as many. And the share of all cars sold will be almost half. This trend is driven by falling prices for electric cars: by 2030, they will be so cheap, even outside China, that they will be able to compete with combustion cars – without subsidies.

The reign of the SUV has arrived

In addition to electric cars, there is also an automotive trend that is supporting global oil demand: the growing popularity of larger and heavier vehicles. SUVs are constantly setting new records, both in terms of sales and emissions. By 2023, they accounted for almost 50% of global car sales – and around 20% of the increase in CO emissions.2 energy-related. According to the IEA, these are:

“The Dominant Automotive Trend of the Early 21st Century”

Paradoxically, this trend is fueled by combustion engines that use oil more efficiently and should actually reduce global consumption. New laws in the EU and the US require CO2 emissions to be halved. However, SUVs with reduced oil consumption no longer consume as much gasoline, making them more affordable for many households. They fit much more easily into tight household budgets.

The Tesla Model Y, the brand’s SUV, was the best-selling model in Switzerland in 2023, all types of propulsion combined.Keystone

The impact of teleworking

Working from home saves a lot of car travel and reduces global oil consumption. In the United States, full-time employees spent an average of 1.4 days a week teleworking last year. In Canada and the United Kingdom, the number of days is similar, in Europe it is still 0.8 and in Asia 0.7.

It’s not clear whether telework will remain popular, according to the IEA. But for now, it has stabilized in wealthier countries at a higher level than before Covid-19. Several states now have laws that encourage flexible working hours, and new technologies could soon make virtual meetings more productive.

No solution for planes

In air transport, there is still nothing that can replace combustion engines on a large scale. Oil consumption will therefore continue to increase, but more slowly than before. In 2023, air travel is almost as frequent as before Covid-19 and it will continue to increase.

At the same time, air transport is becoming more efficient and passengers are transported using less kerosene. This is why its consumption was still lower in 2023 than before Covid-19 and will remain so until 2027, according to the IEA.

The risk of a global crash

Overall, these trends lead to a “decoupling” of oil and the economy. World consumption first grows less quickly than the economy, then not at all, and finally, towards the end of the decade, it falls slightly, and even very sharply in the Western industrialized countries.

There is still an oil spill – which would normally lead to a global crash in oil prices. But the IEA is only cautious about the outlook for the oil price.

“Such a large reservoir of oil could trigger a drop in the price”

The International Energy Agency

This could “weigh on prices until the end of the decade.” If the IEA does not dare to make clear price forecasts, it is mainly for one reason: it is completely unclear how oil producers and their cartel, OPEC, will react to the drop in demand. This is why the head of the IEA, Fatih Birol, addresses them a pressing warning.

Fear of roller coasters

They must “keep a close eye on the increasing pace of change” and be prudent in their investments in order to “ensure an orderly transition.” This means moving away from oil and toward new technologies, such as electric cars or solar energy. And the warning shows, above all, that the IEA’s chief economist fears an unorderly transition, that is, a turbulent one, with ups and downs in the price of oil like a roller coaster.

Patrick Hofstetter, energy expert at the environmental protection organisation WWF, explains how this could happen and how it could affect Switzerland:

“If there is indeed an influx of oil, the price will initially fall, for example to $20 a barrel. But it will not stop there.”

With such a low price, many producers would not be able to survive and would therefore leave the market. Supply would then fall again and the price would rise, perhaps to 50 US dollars. This would still be too low for many producers, which is why they would not replace their old installations and the price would rise again – perhaps again to 80 or 90 dollars, as it is today. Then the next fall could follow, if many producers invest again all at once, while electric cars continue to spread and demand falls further.

Switzerland will have to adapt to these fluctuations, petrol prices will rise and fall more sharply than before, says Hofstetter. Things would still be less extreme than on the crude oil market itself, since the latter only represents a part of the final prices paid at the pump in our country. But overall, according to Hofstetter, “the oil market was already unstable. If we now switch to electromobility, crude oil consumption will no longer increase, but will decrease – and we will have an even more volatile oil price.”

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(Translated and adapted by Chiara Lecca)

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