IEA forecasts fossil fuel drop amid China’s EV boom

Fossil fuel prices are poised to drop rapidly in the second half of the decade, according to the International Energy Agency (IEA), thanks to the ongoing shift toward electric vehicles in China.

Driving the news: Fatih Birol, executive director of the IEA, said he expects global fossil fuel demand to decline quickly in the coming years, forcing a decline in oil and gas prices, during an interview with Bloomberg.

• “This year, global oil demand is very weak, much weaker than previous years, and we expect this will continue because of one word–China,” Birol stated.

• While China was once responsible for more than 60% of the world’s oil demand growth, in a report published last week the IEA explained that the country’s push to adopt EVs amidst an economic downturn has reduced its daily oil consumption by 500,000 barrels compared to 2023. At the same time, an increase in oil production within the U.S. is pushing global supplies to near-record levels.

• These factors will cause oil demand growth to cease entirely before the end of the decade, driving prices down. Birol observed that prices would already be weaker this year if it weren’t for ongoing tensions between Israel and Iran.

Looking ahead: Should fossil fuel demand decline in the coming years, lower gas prices may disrupt growth in EV adoption, convincing buyers to stick with their internal combustion engine (ICE) vehicle. However, it’s difficult to guess the severity of such a disruption as certain factors continue to distort the market’s outlook.

• Combined global EV and plug-in hybrid sales were up 30.5% in September compared to last year. However, demand varies widely by region: China drove a considerable portion of this growth, with sales in the country up 47.9%. U.S. and Canada sales, on the other hand, were up only 4.3%.

• EV sales are also being supported by government and industry initiatives. In the U.S., manufacturers have implemented aggressive incentives and discounts to drive EV growth alongside the White House’s tax credits. Meanwhile, the EV sector in China is propped up by massive government spending, based on investigations by the E.U.

• Despite this, electric cars are still more expensive to purchase than gas-powered vehicles, costing about 19% more in Q3, according to recent data. While some studies still put the long-term costs of EV ownership below that of an ICE car, that could change if gas prices falter faster than EV MSRPs.

Bottom line: Fossil fuel demand may be nearing a permanent decline as the world transitions to cleaner energy. The impact this could have on gas-powered car sales in the latter half of the decade depends entirely on whether EV adoption can grow quickly and profitably in the coming years.

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