Redrawing fuel consumption expectations amid the rise of electric vehicles

In the world of oil, a significant change is on the horizon. The era of easy profits for many oil exporters may be drawing to a close, not due to a scarcity of oil, but because its dominance is gradually and irreversibly fading.

According to the International Energy Agency (IEA), electric vehicles (EVs) displaced over 1.3 million barrels per day (mb/d) of oil consumption in 2024. This growth in EV adoption is beginning to leave a measurable dent in global oil demand. By 2030, this displacement is projected to exceed 5 mb/d, with China alone accounting for nearly half of the oil offset through its expanding EV fleet.

The rise of EVs is reshaping the competitive landscape. For oil producers, competition will no longer be about expanding supply to meet rising demand but about maintaining market share in a stagnating or slowly shrinking market.

There are two main types of EVs: battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs). BEVs run entirely on electricity stored in a battery and produce zero tailpipe emissions. HEVs combine an internal combustion engine with an electric motor, relying on regenerative braking and the engine to recharge the battery. Plug-in hybrid electric vehicles (PHEVs) operate similarly to HEVs but can also be plugged in to recharge externally, allowing for extended electric-only driving ranges.

In 2025, globally, there is one car for every five humans. As more of these cars transition to EVs, the question is not simply how much oil EVs displace, but how that displacement, combined with broader efficiency gains, reshapes the competitive landscape.

It is likely that the global EV transition continues its current trajectory, steadily expanding though falling short of fully displacing internal combustion engine vehicles in the global automotive fleet. This consistency is exceedingly rare in long-run economic or energy data.

The decline in oil intensity - the volume of oil consumed per unit of global gross domestic product (GDP) - has been falling steadily since the first oil shock of the 1970s. This decline, coupled with the rising adoption of EVs, points to a structural shift in oil demand dynamics.

In this new reality, oil producers with untapped reserves and low extraction costs will find themselves in an advantageous position. The most important countries projected to have a large share of EV production in the future are China, which leads the global EV market with over 500 manufacturers and the largest production share, followed by major European countries such as Germany and the UK, where strong government policies, established automotive industries, and infrastructure support growth. Asia, particularly China, dominates EV battery production as well, with Europe facing challenges to catch up by 2030.

The automotive industry has come a long way since Henry Ford launched his assembly line in 1913, marking the start of its growth. Karl Benz built the first practical vehicle with an internal combustion engine in 1885. As we move forward, it's clear that the industry is once again at a pivotal moment, with the rise of EVs set to redefine the future of oil demand.

However, it's important to note that the momentum behind EV adoption could falter due to an unlikely constellation of economic headwinds, reduced policy support, infrastructure bottlenecks, and consumer resistance. In such a scenario, global oil demand may resume an upward trajectory.

In conclusion, the rise of EVs is a significant development that is reshaping the global oil market. While it's uncertain how fast the transition will occur, it's clear that the automotive industry is on the cusp of a major transformation, one that will have far-reaching implications for oil producers, consumers, and the environment alike.