Expectations play a big role in commodity markets. From farmers deciding how much wheat to grow next season to consumer choices over what car to buy given their expectations over the price of fuel. Oil producers, like miners gave to look many years into the future to gauge what the demand will be for their output. The gradual introduction of electric vehicles is one such step change. The conventional wisdom is that it will result in lower demand for oil and hence lower prices. However, the opposite could be true, at least in the short term.
In an interview with Real Vision Dwight Anderson, founder of the iconic Ospraie Management explains why.
“So that EV side is going to be something that is really going to affect demand growth in crude next decade, and I actually think it could have the odd effect of keeping crude oil prices higher for longer at the tail end of this decade into early next. Because the huge projects that have to be sanctioned that really change the supply and demand, the 100 to 500,000 barrels per day, are ultra deep, deep oil sands, Arctic, and they are many billions of dollars and many years’ lead time. So by the end of this decade, when the oil executives are taking a look and they’re going, holy cow, and they’re starting to see electrical vehicles become more competitive outright economically, and start to gain share.”
“And that that will affect the demand growth the middle of next decade. I think they might not sanction some of the large oil projects. The largest, the longest lead time, but also the biggest size and capacity, because of concerns over what pricing will be then. So I think the oddity, actually, is that, at the tail end of this decade to early next, the penetration rate of electrical vehicles I think could lead to higher crude prices, potentially, rather than lower, until that demand really catches up middle to late next decade.”