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Will Crude Demand Plummet On Electric Vehicle Mandates?

By Ellen R. Wald, Ph.D.CommoditiesAug 09, 2017 05:05AM ET
www.investing.com/analysis/piece-for-wednesday-morning-200206146
Will Crude Demand Plummet On Electric Vehicle Mandates?
By Ellen R. Wald, Ph.D.   |  Aug 09, 2017 05:05AM ET
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Several governments have recently announced long-range electric vehicle (EV) mandates intended to increase the use of electric powered vehicles and decrease the use of internal combustion engines in their countries. These countries include emerging markets like India, to well established European markets like Austria and the U.K.

Here is a rundown:

India: Energy minister Piyush Goyal stated that his goal is for India to only sell electric vehicles by 2030.

United Kingdom: The British government recently announced intentions to ban the sale of all gasoline and diesel fueled cars by 2040.

France: Emmanuel Macron’s government announced that France intends to ban the sale of all gasoline and diesel fueled vehicles by 2040.

China: In September 2016, the Chinese government announced a policy requiring that 8% of all car sales be “new energy vehicles.” The government defined this as either EVs, hybrid cars, or fuel cell powered cars. The mandate was originally intended to begin in 2018 but was pushed to 2019.

Austria: With the most ambitious plan of all, the Austrian Ministry of Agriculture and Environment announced it is considering banning the sale of all non-EVs by 2020.

In the long-term, these mandates have the potential to transform the oil markets (not to mention the equity values of vehicle manufacturers). If widespread adoption of EVs does actually occur, this will clearly depress the value of crude oil. For example, just under 50% of crude oil refined in the U.S. is processed into gasoline for vehicles, according to the EIA. However, do not get excited just yet about a transformation in fuel usage.

The problems with EVs now include: insufficient range, long recharge times, upfront expense, questionable resale value, undetermined lifespan on the battery, and insufficient charging infrastructure on the roads. Innovations and improvements do not necessarily happen because the government mandates it. Oftentimes, government mandates fail to bring technological innovation into existence (see the U.S. fuel-mileage mandates of the early 2000s which have been regularly missed).

However, if, in 10, 15, or 20 years, EVs are as (or almost as) prevalent at these policies hope, crude oil demand will have plummeted. For investors, just the fear of this may be enough to weigh on the price of oil for some time. The notion of “Peak Demand” has taunted oil traders and producers alike for a little over a year, with the possibility that demand for oil may not grow anymore due to transitions to alternative forms of power.

The last couple of weeks have seen much publicity for the future of EVs, between the debut of Tesla Inc (NASDAQ:TSLA)’s Model 3 car and the regular announcements of new EV mandates. That publicity alone makes it hard for the price trend of oil to rise, at least until the hypes over EV and “Peak Demand” subside.

Will Crude Demand Plummet On Electric Vehicle Mandates?
 
Will Crude Demand Plummet On Electric Vehicle Mandates?

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Aug 10, 2017 5:53PM ET
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when im dead in 20 years, i will short oil.
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Nathan Kelly
Nathan Kelly Aug 10, 2017 5:53PM ET
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Hahahaha.... :)
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Chris Wood
Chris Wood Aug 09, 2017 3:03PM ET
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Answer is not yet and last for decade and you are welcome.
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Do Deikins
DoRight Aug 09, 2017 1:44PM ET
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All hail our glorious solar future!  While little children work in horrible conditions mining 'illegal' cobalt in the DRC (from where 60% comes) and mothers grieve their dead husbands and children from cobalt lung disease and mine collapses, we can bask in saving the 'world' from nasty CO2.  Tesla alone is reputed to need 7,800 tons of cobalt (mostly for batteries) in 2018.  Much of the cobalt from the DRC comes through a network of virtually untraceable middle-men according to Amnesty International.
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Do Deikins
DoRight Aug 09, 2017 12:52PM ET
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Ah, yes, batteries are a perfect black box.  We can put our hands over our ears and not hear the sobs of the child laborers working under harsh conditions in the cobalt mines of the DRC (from where 60% of the world's cobalt comes) and put on sunglasses so that we don't see the tears of the mothers who have lost their husbands and children to cobalt lung disease and mine collapses.  Tesla alone will reputedly need 7,800 tons of cobalt in 2018.  May our solar future shine brightly! - and our souls be soothed by how much we are saving the 'world'.  (And buy legitimate cobalt mining stocks.)  ¡Ay caramba!
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Aug 09, 2017 9:35AM ET
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will electric vehicles reach their mandate targets? no. will the crude demand then rise?
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contrarianpicks com
contrarianpicks Aug 09, 2017 9:35AM ET
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no.. . because conventional vehicles will also become more efficient. and cheaper solar power will replace some oil and gas power plants.
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PAKAWA pakawa
PAKAWA pakawa Aug 09, 2017 9:34AM ET
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Hydrogen fuel cell vehicles are perfect.
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Oliver Rios
orios01 Aug 09, 2017 9:20AM ET
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i say electric/alternatives are a levered bet on the price of oil. when the price of oil is beyond what the consumer is able to pay, then electric/alternatives are relevant. with a low price oil the consumer is likely to consumer more oil
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Trey Gilmore
Trey Gilmore Aug 09, 2017 9:12AM ET
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China won't do it, India can't do it, and Europe doesn't drive cars.
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Aaaa DeVil
Aaaa DeVil Aug 09, 2017 9:11AM ET
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Oil is and will be a key energy commodity. EVs can only increase demand on energy, means more nuclear plants, more natural gas, more oil will be needed. Oil might be just transfered from an engine fuel to and energy fuel. EV is just an innovation. Oil is still the only (the biggest) energy commodity.
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Timochin Khan
Timochin Khan Aug 09, 2017 7:19AM ET
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Excellent Ellen...Thanks for warning..
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