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Automotive sales trends suggest higher oil demand in the medium term
The vehicle industry’s shift towards cleaner technology is poised to throw a wrench in the oil market – but likely not for another decade, reports Wood Mackenzie. Demand growth from light vehicles and two-wheelers, a key sector which accounts for roughly 30% of the near 100mn b/d in global crude consumption, are expected to slow down over the next 10 years, and eventually begin to decline after 2030, with the rapid adoption of electric vehicles (EVs) .
EVs are slowly emerging as the substitute for fossil fuel-powered cars. Sales of EVs doubled to nearly 2mn units globally between 2017 and 2018, highlighting the transition that is occurring in the auto industry. Yet with total auto sales of almost 90mn – and a global light vehicle stock size of 1.2bn – EV's impact on oil demand is more long-term in nature.
In the medium term, since the vehicle fleet takes over 10 years to turn over, the outlook is largely determined by trends seen in today's auto market – the type of cars being bought and their fuel efficiency.
In a recent report, Wood Mackenzie's experts weigh in on some of the auto sales trends in the Asia-Pacific.
In Japan, considered the most advanced high efficient car market, oil demand is expected to continue to shrink. Masaatsu Koyama, Research Director, says: ‘Japan's pursuit of higher fuel efficiency continues, as its passenger car fleet shifts further toward hybrid electric vehicles (HEVs) and “mini” gasoline-fueled internal combustion engine (ICE) vehicles. In 2018, Japan's new car sales reached nearly 4.4mn units, of which HEVs accounted for over 25% and mini cars for more than one third. Their share in the country's car population is now nearly half. In response to the rising share of highly fuel efficient vehicles, Japan's 2020 target of 20.3 km per litre, or 48 miles per gallon, in JC08mode has already been achieved. As such, Japan's gasoline demand is expected to decline by over 10% between now and 2025.’
Meanwhile, in China, SUVs are the main driver, with fuel demand forecast to expand by 20% as SUVs offset the increase of EVs. Yujiao Lei, Consultant, notes: ‘In 2018, China's car sales slipped by 4% to 23.7mn, the first year-on-year decline in 28 years. There were multiple factors behind this fall, such as a tax break that brought forward car purchases and a tighter credit environment. However, SUVs did not lose momentum. Their share of total car sales has grown from 6.6% a decade ago to 42% in 2018. With rising income, and the after-effect of China abandoning its one-child policy in 2015, car sales have shifted towards higher-grade, larger-size family cars. This has led to a shift towards a less fuel efficient car segment.’
‘The EV is another sector in China that has a lot of potential. In 2018, China's EV sales grew by 90% to reach 1mn, or 4% of overall car sales. China's central and local governments have been aggressively adopting policies to promote EVs. With the central government's subsidies ending in 2020, there will likely be a surge in EV purchases in 2019. Meanwhile, as SUV sales were more than 10 times as large as EV sales, the upside fuel demand effect of shifting to SUVs more than offsets the downside effect from EVs.’
‘With the introduction of a new tax cut for the automotive manufacturing industry in 2019 and household incomes increasing, we expect auto sales to return to growth. Our forecast has fuel demand from cars increasing by about 20% through 2025.’
In India, sales of two-wheelers are surging amid a shift towards mid-size cars. Aman Verma, Senior Research Analyst, Wood MacKenzie, comments: ‘In 2018, two-wheeler sales (such as motorcycles and scooters) grew by 18.5% on the back of robust demand from the rural sector and urban youth. In 2018 there were around 195.7mn two wheelers on the road, with ownership levels reaching 145 per 1,000 people. When it comes to road fuel demand, the impact is huge. Two wheelers contributed to around 56% of total gasoline demand in 2018.’
‘At the same time, car sales in India grew 4.1% last year. Consumers are shifting towards mid-size and bigger cars. Compared to two wheelers, the car fleet and ownership levels were just 32.6mn, or 24 per 1,000 people. However, with an expanding middle class and rising incomes, car ownership levels will increase faster than two-wheeler ownership levels, which should boost gasoline fuel demand in the medium term. We expect fuel demand from the two combined to grow by 0.4mn b/d, over 50% from 2018 to 2025.’