Last month, the International Energy Agency (IEA) published its annual World Energy Outlook, wherein it predicted that global demand for all fossil fuels will stop growing in the current decade while renewable energy would account for almost half of global power generation by 2030. According to the Paris-based energy watchdog, global oil demand would need to fall from the current clip of 103 million barrels per day to ~ 85 million barrels per day in 2030 for the world to be on pace to hit its net zero target by 2050. That works out to a decline rate of three to four million barrels per day, per year, till the end of the decade.
IEA’s highly bearish predictions for the oil industry mirror those by Bloomberg. Back in April, Bloomberg predicted that global demand for road fuel would continue to grow for only four more years, with demand peaking in 2027 at 49 million barrels per day before entering terminal decline. According to Bloomberg, electric vehicles, ever-improving fuel efficiency and shared mobility are the oil sector’s biggest nemesis, with EVs expected to displace a staggering 20 million barrels per day in oil demand by 2040, up from 2 million barrels per day currently. Bloomberg reckons that demand for gasoline and diesel for road transport has already peaked in the U.S. and Europe, while demand in China is set to peak in 2024. Demand in other major consuming countries like India will go into a tailspin in the 2030s.
However, another well-known analyst has pointed out that these bearish scenarios are highly unlikely to materialize. Speaking in an interview on the CBC’s “The Eyeopener,” Enverus Intelligence Research’s Al Salazar has pointed out that 85 million barrels per day is six million barrels less than the demand levels experienced during COVID-19, when global oil demand slumped to ~91 MMbbl/d in 2020 and sent oil prices into negative territory for the first time in history. As Al Salazar has noted, the EV revolution is starting to face serious roadblocks, with China’s renewable energy and EV sector facing a tariff storm.
Biden’s administration has been nearly as hard on China as Trump’s first term, albeit with much less fanfare. Two months ago, the Office of the U.S. Trade Representative (USTR) finalized its plan to raise tariffs on a slew of Chinese goods, largely adopting hikes it first proposed in May. The expanded tariffs mainly target strategic product categories, including electric vehicles, batteries, solar cells, semiconductors and critical minerals. The final tariff structure covers thousands of items under 14 product categories, with the first tariff hikes set to go into effect on Sept. 27 and the rest over the next two years. And, they are just as punitive as those of the Trump era: Chinese EVs were slapped with a hefty 100% tariff; a 25% tariff on lithium-ion EV batteries, and a 50% tariff on photovoltaic solar cells. Meanwhile, a 50% tariff on China-made semiconductors will go into effect in 2025.
But the U.S. is hardly an outlier here. The 27-member European Union is currently in the process of determining whether or not to impose duties on imports of Chinese electric vehicles. A year ago, EU President Ursula von der Leyen launched the anti-subsidy probe, and it concluded by recommending duties ranging between 8 percent and 35 percent on Chinese EVs. An informal vote held on July 15 saw a group of countries representing 62.5 percent of the bloc’s population in favor of the tariffs, meaning the final vote is likely to see the tariffs approved. Whereas these duties could buy time for the likes of Volkswagen (OTCPK:VWAGY) or Stellantis (NYSE:STLA) to adapt, they are likely to trigger another huge trade war with Beijing already threatening to impose tit-for-tat tariffs on a range of European goods including high-end autos, brandy, pork, and dairy products.
Trump has proposed a 10 to 20 percent tariff on all imports, and a 60 percent tariff on all imports from China. Whereas he has sought to undo some policies enacted under Democrat presidents including Obamacare, it’s likely that he will go along with the already punitive tariffs imposed by the Biden administration, especially since they will help Elon Musk’s Tesla Inc. (NASDAQ:TSLA). In fact, that appears to be the view by stock markets, with TSLA having jumped more than 20% since November 6. According to Wedbush Securities analyst Dan Ives, the Trump White House win will be a game changer for the autonomous and AI story for Tesla and Musk over the coming years.
"We estimate the AI and autonomous opportunity is worth $1 trillion alone for Tesla, and we fully expect under a Trump White House these key initiatives will now get fast tracked as the federal regulatory spiderweb that Musk & Co. have encountered over the past few years around FSD/autonomous clears significantly under a new Trump era." highlighted Ives.
By Alex Kimani for Oilprice.com
