EVs not slowing oil demand growth yet, supporting ‘mini’ golden age for refiners: IHS Markit

Short-term oil demand is still growing strong and will continue to do so through the end of 2020; a trend taking place despite the market’s increasing focus on electric vehicles and the forecasted future plateau in oil demand, according to new analysis from IHS Markit.

Refined product demand growth has averaged 1.2 million barrels per day over the last five years, the global business information provider says in the new report from its oil markets and research team.

Current global total liquids oil demand growth is at similar levels to what was recorded during the 2003 to 2007 commodity super-cycle, referred to as the “golden age” of refining. At present, current global total liquids oil demand is approximately 100 million barrels per day, the report says.

With economic growth robust and prices still under pressure, indications are that the current strong global refined product demand growth will continue through to end-2020, averaging 1.1 million barrels per day, per year, during the period. IHS Markit expects global GDP to grow by 3.4 per cent in both 2018 and 2019 due to convergence of robust economic activity in many markets around the world.

“Although electric vehicles (EVs) are making headlines, they are not yet a market force to replace the internal combustion engines that power today’s automotive fleets, so oil demand is currently growing strong,” Spencer Welch, director, head of global short-term refining research at IHS Markit and the report’s co-author, said in a statement.

“Although EVs undoubtedly have the potential to disrupt the energy and automotive sectors in the longer term, they currently make up around 1.5 per cent to two per cent of total global vehicle sales, and account for less than 0.5 per cent of the global vehicle fleet; so their influence on the oil market, in the short term, is limited.”

Demand growth widely distributed

The IHS Markit report compared the current oil demand growth surge to demand levels during 2003 to 2007, and identified underlying significant differences between the two cycles.

“Demand growth now is currently more widely distributed, with the OECD (Organization for Economic Cooperation and Development, which includes 35 countries) region and NGLs (natural gas liquids) contributing much more to global oil demand than during 2003 to 2007. In addition, the global oil demand growth is supported by most refined products rather than being concentrated on diesel as it was in the previous period, which is putting less strain on refiners,” Welch said.

“Refiners are also better prepared to meet current global demand growth than they were in the previous commodity super-cycle, and as a result, have been enjoying a ‘mini-golden age,’ which we expect to continue a while longer.”

This diversity of demand, both geographically and in terms of product mix, is an important factor, IHS Markit said, in determining the sustainability of the current cycle, which is key to keeping the oil market in balance, and supporting prices.

“There is a possibility that the OECD-demand growth effects could be short-lived as oil prices gradually start returning to higher levels, fuel economy improves and EV penetration grows,” Welch said.

“Looking forward, we expect a continued reduction in energy intensity to gradually offset the factors currently supporting demand growth,” added Eleanor Budds, principal analyst, oil markets and downstream, at IHS Markit, and a co-author of the IHS Markit report. “Several growth drivers, notably in EVs and fossil fuel regulation, have developed rapidly during the past year and will continue to do so during 2018 and 2019.”

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.