|By Arabian Post Staff| As much as 69 percent of oil demand growth up to 2022 will be in Emerging Asia, according to a report by Bank of America Merrill Lynch.
Other key conclusions of the report include advancement of the oil demand peak from 2050 to 2035 due to fast growth in electrical vehicles, increased carpooling/sharing and autonomous driving; increase in consumption by 1.1mn b/d p.a. to 2022 and higher car penetration rates in emerging markets, which are now lagging behind the developed markets.
The report revises the investment bank’s long-term (to 2050) global demand base-case to assume electric vehicles take off in the 2020s, based on updated projections. Fast growth in EVs coupled with increased carpooling/sharing and autonomous driving may force peak oil demand by 2035 (vs. 2050+ prior).
Even so, the incoming Trump Administration could well reverse some policies. An aggressive descaling of EPA’s fuel efficiency targets past 2020 coupled with reduced support to electric vehicles may push peak oil demand back to 2050.
The efficiency effect (i.e. car choice) of oil prices on oil demand growth is much more long-lasting compared to the transport effect (i.e. miles driven). The collapse in oil prices initially caused a shift in favour of larger and less fuel efficient cars like SUVs, from India to China to the US.
Yet, the overall effect of the initial price drop on oil demand growth may fade materially in two years as short-term transport effects wear off and only long-lasting efficiency effects remain.
The report lists a possible reversal of globalisation as a major risk to the positive view on oil demand to 2022 as oil fuels trade and transport. Developed market demand may keep contracting on mandated efficiency policies already in place. Net, an expected US oil demand drop is mitigated by new petchem plants starting up in 2017, but overall US demand still contracts on transport efficiency gains to 2022.
Car penetration rates in emerging markets remains far behind the developed markets, leaving plenty of room for transport demand to grow for decades to come. Also the share of SUV sales in India and China remains lower than in the US.
Importantly, the EM shift in new cars sold toward SUVs started in 2010 long before prices collapsed, suggesting a strong consumer bias for large vehicles. Still, there is an attempt by policymakers to curb less efficient vehicles due to pollution and foreign fuel dependency fears.
Over the medium term, the report expects emerging market demand to get a cyclical lift predominately from Brazil and Russia, both major oil producers, but there could be a much more muted demand response from the Middle East. Overall, about 69% of global demand growth to 2022 comes from Emerging Asia, with oil producing regions accounting only for 28% of the growth compared to 41% in 2010-14.