FEATURE: Electric SUVs Mean the Crude Oil Market’s Backwardation is Underdone (3)

–Oil’s twilight gets closer – see story I wrote on this two years ago in notes
–It might not make sense to own a non-electric car by 2030: source


May 3-9, 2021 — LONDON: The outlook for crude oil futures isn’t as rosy as implied by its forward curve.

The discount of December 2024 Brent crude contracts to the front month is 13%, so $57.86 a barrel vs $66.82 as of Monday morning (May 3), according to data from ICE Futures Europe (the Dec. 2024 contracted hadn’t traded at the time I looked).

Front month Brent then advanced last week, with the discount of the 2024 contract fluctuating between 12-15%.

Brent for 2024 hasn’t risen as much above pre-pandemic levels as the front-month contract has; see this:

That projected decline seems a little — ahem, silly — when you consider the projections being made by the IEA about electric vehicle stocks and sales in 2030. See this chart:

So EV sales will have more than a one-third share by 2030 assuming the world sticks with its push to save the climate.

And don’t forget the IEA has a strong track record for underestimating EV sales.

Importantly, EV sales have been held back by the lack of sports utility vehicle models on offer. That’s rapidly changing this year, with electric SUVs set to be the latest bling thing.

Check this one random sample (Lexus has a billboard near my house):

Lexus SUV range website: https://www.lexus.co.uk/suv/
NOTE: “With all-electric and self-charging hybrid engines.”

Until now a lack of availability of electric SUVs has slowed the transition away from internal combustion engine vehicles. See this:

It’s not just electric SUVs that will drive demand. Fleet operations will “lead the way to broader adoption,” of electric vehicles, according to Morgan Stanley. EVs are one of the most “talked about” ESG themes:

Morgan Stanley

One of my smart friends reckons oil prices will be less than half the current 2024 futures price in 2025 amid EV competition and heightened tensions within OPEC. (Warning – he says this off the record. Beware of relying on non-transparent data/forecasts.)

It might not make much sense to own a non-electric vehicle by 2030, he said.

Already today, the total cost of ownership (TCO) of a BEV is lower than the TCO of a comparable conventional car in more than ten European countries and their economic case will only be
strengthened in the next few years, according to a study by environmental lobby group Transport & Environment (see link below in this chart):


Policymakers have a challenge when making decisions on promoting emission cuts in transport because research in the area seems to select data sets/fuel types according to the required narrative. Compare the above with the following from the EU eFuel Alliance (see link in caption):

April 2021 … CBM = compressed biomethane, CNG=compressed natural gas, BEV=battery electric vehicles: https://www.efuel-alliance.eu/fileadmin/Downloads/Frontier-Economics-Study-for-NGVA-Carbon-abatement-costs-260421-stc.pdf

One complication of the EV evolution is the impact on government tax revenue. See this IEA chart, which indicates a global net tax loss of as much as about $50 billion by 2030; The U.K. is seen introducing toll roads to make up for the loss of road funding, because demand may rise if road transport becomes cleaner and more autonomous/robotic:

(Updates with 2030 cost debate; earlier with tax loss; updates Brent prices; keen for feedback on this opinion. Earlier in the week: need to take my family somewhere in my non-electric Skoda – Shell, my fuel provider, says it offsets the emissions from all my trips. Yes I feel guilty about my emissions and my inability to argue the case for more climate-friendly markets. mathewncarr@gmail.com)

NOTES: https://www.bloomberg.com/news/articles/2019-02-12/oil-s-twilight-here-s-one-investor-view-on-how-it-plays-out?sref=fcMjhrdB

Key EV bottleneck here:

Leave a Reply