Speaker 1: This is Tom Rowlands Reese and you're listening to Switched
Speaker 1: on the podcast brought to you by bn EF. On
Speaker 1: April second, the introduction of the Trump administration's Liberation Day
Speaker 1: tariffs caused indices measuring US business and consumer sentiment to
Speaker 1: fall and global GDP forecasts to be trimmed. Sensitive to
Speaker 1: such fluctuations, oil price has declined steeply, with the Brent
Speaker 1: index even reaching as low as sixty two dollars per
Speaker 1: barrel on April fourth, and here at BNF we have
Speaker 1: cut our forecasts for global demand growth of oil. This
Speaker 1: decline in demand comes an nor quit time for global
Speaker 1: oil markets, as recent announcements from OPEC plus members and
Speaker 1: other major oil producing nations have signaled they are set
Speaker 1: to join the US in ramping their production. What does
Speaker 1: this mean for the near term future of the global
Speaker 1: oil sector and the all important price per barrel? Today
Speaker 1: I'm joined by bn EF's head of Oil Markets Research,
Speaker 1: Wayne Tan and we discuss findings from his note Oil
Speaker 1: Markets Monthly Tariff's OPEC Plus hike structural shift, which b
Speaker 1: and EF clients can find at BNF go on the
Speaker 1: Bloomberg terminal or on BNF dot com. All right, let's
Speaker 1: get to talk about global oil markets with Wayne. Hi. Wayne,
Speaker 1: thanks for coming on the podcast today.
Speaker 2: Thanks for having me.
Speaker 1: It's not exactly ever a particularly stable market. Oil is
Speaker 1: always interesting. It's always subject to various geopolitical backs and
Speaker 1: forth as well as the global economy. And so then
Speaker 1: with that backdrop, we then have the Trump administration's Liberation
Speaker 1: Day announcement, and so, I mean, my first question is
Speaker 1: how has that been changing the market, particularly from a
Speaker 1: demand perspective. We'll get to supply in a moment, but
Speaker 1: how have these tariff announcements been impacting the demand risks
Speaker 1: that impact oil?
Speaker 2: Yeah?
Speaker 3: Thanks Tom. I'd say that, like obviously, the world we
Speaker 3: are heading into in the coming years would be quite
Speaker 3: different from the one that we are quite accustomed to.
Speaker 3: We are probably entering an era of de globalization. We
Speaker 3: are all quite aware of the Liberasi and data tariffs
Speaker 3: that Trump announced, and also the escalation of the trade
Speaker 3: war between US and China, and so our job is
Speaker 3: to quantify how those terraffs would impact oil sector for
Speaker 3: oil demand, the way that we think about it is
Speaker 3: WACH countries and WACH sectors are most reliant on.
Speaker 2: Trade for growth.
Speaker 3: So that would be developing countries in particular because those
Speaker 3: countries are more dependent on trade for growth, and the
Speaker 3: sectors that are more dependent on trade are manufacturing sectors.
Speaker 3: And because the manufacturing sector, and we know automobile manufacturing
Speaker 3: is a segment that has been hit pretty hard, the
Speaker 3: consumption of raw materials also drops. So the consumption are steel, iron,
Speaker 3: ore and whatnot also drops. And that also heats metals
Speaker 3: and mining. So because the metals, mining and manufacturing sectors
Speaker 3: are sectors that are energy intensive, so that has a
Speaker 3: pronounced impact on oil demand and the type of oil
Speaker 3: products that you will typically use in intric manufacturing sector
Speaker 3: as well as the mining sectors are diesel, an AFTA,
Speaker 3: fuel oil basically industrial fuels, but also bunker fuels.
Speaker 2: So we are a.
Speaker 3: Little bit more precautious in our outlook for diesel, fuel
Speaker 3: oil and AFTA. We have cut so far three hundred
Speaker 3: and ten thousand barrels per day of oil demand from
Speaker 3: the libration day tarrafs alone.
Speaker 1: And what is that as a percentage of global oil demand?
Speaker 1: Just for those of us who are not following the
Speaker 1: market as closely, it's.
Speaker 3: Something like zero five percent. However, there was an escalation
Speaker 3: of the TIFO tet terriers right between US and China,
Speaker 3: and so a key segment of growth for oil demand
Speaker 3: has been China's petrochemical sector. So the petrochlamical sector consumes
Speaker 3: a lot of LPG, which is liquified petrolum gas as
Speaker 3: well as ethane, and China imports a lot of natural
Speaker 3: gas liquids from the US which they will then convert
Speaker 3: into petrochemical fists such as lpgn ETHNE. So because we
Speaker 3: no longer expect China to import much, if any natural
Speaker 3: guessloicids from the US, we think that they would struggle
Speaker 3: to replace.
Speaker 2: NGAIL imports from the US. They would have to look
Speaker 2: to our Middle Eastern suppliers.
Speaker 3: But ultimately we think that they would struggle to replace
Speaker 3: US in parts of NGLs. And so we further reduced
Speaker 3: China's or demand, particularly in the petrochemical sector, by another
Speaker 3: two hundred thousand verse perdy. So overall, our new es
Speaker 3: demate right now is a little over half a million
Speaker 3: verus per day of impact to demand.
Speaker 1: And I mean, I know you mentioned that a lot
Speaker 1: of this impact is concentrated in emerging markets. How much
Speaker 1: downside risk for demand do you see in the US,
Speaker 1: which is obviously itself a huge consumer of oil products.
Speaker 1: I've got in my notes here that makes up over
Speaker 1: twenty percent of global demand volume in twenty twenty four.
Speaker 1: So I realized that there's how these tariffs affect everyone
Speaker 1: who is in the US. But how does the tariffs
Speaker 1: and the counter tariffs we're hearing about potentially effect demand
Speaker 1: from the US.
Speaker 3: There was actually like two over arching scenarios for this,
Speaker 3: for the trade war or other, how every country in
Speaker 3: the world would react to the libration day tariffs. First reaction,
Speaker 3: which will be kind of good for the US, is
Speaker 3: if everyone is sort of looking to make a deal
Speaker 3: with the US right. The second outcome is if the
Speaker 3: rest of the countries, particularly the media trading partners, are
Speaker 3: a little bit more combative, so they are looking at
Speaker 3: retatory measures such as from China, but also to some
Speaker 3: extent the EU and Canada, and in that scenario US
Speaker 3: actually gets hit a lot harder than the first scenario.
Speaker 1: So the first scenario is where Trump's tariffs go according
Speaker 1: to plan, and so US demand is a lot more solid.
Speaker 1: And the second one is that the world responds aggressively,
Speaker 1: and that would have a downside impact on US oil
Speaker 1: demand and therefore global world demand precisely.
Speaker 3: So it does seem like the second scenario is more
Speaker 3: likely to happen in some shape or form, and so
Speaker 3: we think that the risk to oil demand in the
Speaker 3: US is pretty high. We actually estimate a demand impact
Speaker 3: of around one hundred and fifty thousand births per day
Speaker 3: downside to all the money in the US, and it
Speaker 3: will be across different sectors because when you know, prices
Speaker 3: increase due to the terriffs, people spend less and people
Speaker 3: spend less, particular retail consumers span less, gasoline demand falls,
Speaker 3: people lose their jobs, and people would also spend less
Speaker 3: on air.
Speaker 2: Travel and whatnot. So the impact will be across different segments.
Speaker 3: And so you can see from our estimates and the
Speaker 3: monthly report published that the negative impact of demand is
Speaker 3: is pretty well distributed across the barrel.
Speaker 1: Before we started to talk about the US, I think
Speaker 1: you said we've gotten estimated downside of was it two
Speaker 1: hundred thousand barrels per day?
Speaker 2: That's to North America.
Speaker 3: So, because Canada is also very exposed to the US economy,
Speaker 3: and if the US doesn't do very well moving ahead,
Speaker 3: Canada would also.
Speaker 2: Be hit pretty hard as well as Mexico.
Speaker 3: Actually, so Mexico and Canada gets hit very hard if
Speaker 3: the US economy is loose.
Speaker 1: So Wayne, we talked about the demand risks and the
Speaker 1: sort of the downside from the tariffs. That of course
Speaker 1: ignores the fact that also these tariffs could potentially impact supply,
Speaker 1: or this brilliant global trade war could impact supplies. So
Speaker 1: tell us about that a little bit.
Speaker 3: So when de month falls, oil prices fall, and that's
Speaker 3: a natural headwind for oil production because where oil prices
Speaker 3: are load producers are less incentivized to produce more right,
Speaker 3: they'd rather keep you know, oil underground if they can,
Speaker 3: or in storage. However, our analysis suggest that a lot
Speaker 3: of the break events, particularly in the US, the show
Speaker 3: oil plays well in the fifties or forties, even the thirties.
Speaker 2: Some of the.
Speaker 3: Other fast growing producers at Guiana, they have break events
Speaker 3: of that is even lower than that.
Speaker 2: It's like in the twenties and thirties.
Speaker 1: Can can you just explain quickly what we mean by
Speaker 1: break events, what these numbers mean.
Speaker 3: So break even is the price point where a producer
Speaker 3: is able to cover its operating costs of producing a
Speaker 3: betre of oil.
Speaker 1: So if we say a break even the twenty five
Speaker 1: you mean when the oil price is above twenty five
Speaker 1: dollars borol per day, that producers should be able to
Speaker 1: operate profitably.
Speaker 2: Is that right?
Speaker 3: Yeah, at a break even, So any higher than a
Speaker 3: break even point it would be in an operating profit
Speaker 3: to be precise, Currently prices are still well above sixty.
Speaker 2: When we look at WTIM brands.
Speaker 3: We do not see a lot of negative impact to
Speaker 3: global oil production at least as of right now, but
Speaker 3: we do think that it would impact growth a lot
Speaker 3: for next year, although we haven't really come out of
Speaker 3: an estimate, but because prices are by and large are
Speaker 3: lower now and they are much closer to break events now,
Speaker 3: so it's quite likely that our companies will practice prudence
Speaker 3: when it comes to expanding their production, and they could
Speaker 3: more likely prioritize other things like dividend payouts, share buybacks,
Speaker 3: that kind of stuff.
Speaker 2: Physical discipline. So that's one part of the equation.
Speaker 3: But on the supply side, the biggest factor so far,
Speaker 3: and the main reason why oil prices haven't really crashed
Speaker 3: as much as we anticipated, is because of President Trump
Speaker 3: basically ended any foreign entities ability to export oil from Venezuela.
Speaker 3: So we've actually cut our estimates of Venezuela's OI production
Speaker 3: by about three hundred thousand barros per day from May onwards.
Speaker 3: And any country that that intends to import Venezuelan oil
Speaker 3: will be subjected to twenty five percent import terrifs from
Speaker 3: the US. So they called that secondary tariffs.
Speaker 1: So three hundred thousand barrels per day effectively cut from
Speaker 1: the global market from Venezuela. And can you just remind
Speaker 1: us what the number you said was the downside for
Speaker 1: supply with all of this global turmoil.
Speaker 3: It's roughly equivalent to half of the downside to demand
Speaker 3: due to the terriffs as well as the tip for
Speaker 3: tet between China and the US.
Speaker 1: So it was around six hundred thousand was the downside
Speaker 1: in demand, And we just think just from Venezuela and this, Yeah,
Speaker 1: three hundred thousand. Also I read a new report that
Speaker 1: there's also been threats to do something similar for Russian
Speaker 1: oil and around as well, So yeah, took us through that.
Speaker 2: Yeah, so I think it's more the res is higher
Speaker 2: for Iran.
Speaker 3: So basically President Donald US President Donna Trump is threatening
Speaker 3: similar terrors on Iran and Russia, and so the market
Speaker 3: is gradually pricing in that risk, which is why I
Speaker 3: price US sticked up in the last few days. Basically,
Speaker 3: traders are gradually pricing in risks of supply disruption from
Speaker 3: those two countries, in particularly Iran.
Speaker 1: This is so interesting it kind of will lead on
Speaker 1: to my next question, which which I'll get into it
Speaker 1: in a moment. But in effect, US foreign foreign policy,
Speaker 1: specifically President Donald Trump's foreign policy has had an impact
Speaker 1: on the outlook for global oil demand via his tariff
Speaker 1: strategy and how that is going to affect global economy
Speaker 1: generally and the disruptions there, and then also through specific
Speaker 1: geopolitical leavers. His policies are impacting the outlook for supply
Speaker 1: by about an equal amount. So the price outlook I'm
Speaker 1: presuming isn't changing that much in the near term. Certainly,
Speaker 1: the US's impact on the market is a lot more
Speaker 1: significant than it was, which kind of leads me to
Speaker 1: asking about OPEK and their decision of OPEK plus to
Speaker 1: accelerate the easing of production cuts for the month of
Speaker 1: me and I want to just pick up on something
Speaker 1: you said earlier about suppliers practicing fiscal discipline, returning dividends
Speaker 1: to shareholders, and that became the paradigm for the oil market,
Speaker 1: to my understand particularly the shale industry, which was at
Speaker 1: the time the marginal barrel around twenty twenty, because there
Speaker 1: was a drop in global oil demand because of the
Speaker 1: COVID pandemic, and then OPEK plus agreed to increase output,
Speaker 1: which absolutely crashed the oil price and was sort of
Speaker 1: devastating for those shell producers which up until that point
Speaker 1: had been getting cheap capital with the understanding that expansion
Speaker 1: of supply was the goal. Son after that it was
Speaker 1: they were very much rained in and were operating in
Speaker 1: a much more conservative fashion and following that paradigm that
Speaker 1: you described, fiscal discipline, return value to shareholders. So where
Speaker 1: I'm going with this is, at the time, it really
Speaker 1: felt like, in this moment of chaos and the COVID
Speaker 1: pandemic and the US at the time exerting itself more
Speaker 1: on global oil markets, OPEK did this thing that kind
Speaker 1: of really reminded everyone who was in charge and sort
Speaker 1: of set the narrative along terms that were favorable to
Speaker 1: OPEK and in particular sort of really slowed down this
Speaker 1: expansion of US shale. Do you think this is a
Speaker 1: similar kind of play that in the middle all of
Speaker 1: this chaos that's happening, all of this this change and
Speaker 1: a lot of it centering around the US, OPEK is
Speaker 1: increasing output and really reminding the oil market. You know,
Speaker 1: who's in charge.
Speaker 2: That's a great question.
Speaker 3: Actually, I mean the way that we think about it
Speaker 3: is the OPEK PLUS, which stands for the Organization of
Speaker 3: Petroleum Exporting Countries history over arching strategies.
Speaker 2: So the first is what you mentioned.
Speaker 3: We just to protect market share or even to expand
Speaker 3: the market share by increasingduction, which crashes prices oil prices
Speaker 3: so that non no pepe plass producers will be more
Speaker 3: careful right with exercise fiscal discipline.
Speaker 2: There are two other oter strategies that we can think of.
Speaker 3: So the second one is actually cutting production, right the
Speaker 3: obvious one, and that's to support prices to hopefully increase
Speaker 3: overall revenue. And that is what OPAC class has been
Speaker 3: doing for almost the entire period since COVID hit, so
Speaker 3: they have been basically putting a restraint on production since then.
Speaker 3: There's actually a third one, which is to preserve unity
Speaker 3: within OPEC plus. So what we've seen in especially in
Speaker 3: the last two months. Is Kazakhstan overproducing significantly against their
Speaker 3: production quotas. The problem that Kazakhstan is facing is actually
Speaker 3: because they have a lot of independent oil producers. Basically,
Speaker 3: they have US and European oil companies operating in the
Speaker 3: country and they do not have any incentive to abide
Speaker 3: by Kazakhstans or black class targets, right they are like
Speaker 3: they only care about profit and loss. So Kazakhstan has
Speaker 3: been overproducing and they actually had new capacity coming online
Speaker 3: in its largest oil field, the tank Is Feel and
Speaker 3: that actually boosted production in the last couple of months.
Speaker 3: Since February and March it grew by even more, and
Speaker 3: so that created a lot of feelings of unfairness within
Speaker 3: old back Plus, why is Kazakhstan able to overproduce by
Speaker 3: so much? And so I think the group as a whole,
Speaker 3: particularly Saudi Arabia, which which kind of leads the group
Speaker 3: and has most to lose if O back plast unity
Speaker 3: falls apart, a push for an easing of production cards
Speaker 3: so as to kind of preserve that unity within the
Speaker 3: member countries, because we've seen what happens when the unity
Speaker 3: falls apart. So back in March or April twenty twenty,
Speaker 3: Saudia and Russia couldn't agree to a production target, and
Speaker 3: so overnight they produced however much they wanted or supplied
Speaker 3: rules by I think it was something like ten million
Speaker 3: barrels per day just overnight, and that obviously was inconvenient
Speaker 3: timing because demand was also crashing, and so that led
Speaker 3: to negative aidprisers. So I think what OPEC PLUSZ is
Speaker 3: trying to do is to avoid that from happening. And
Speaker 3: that really stemmed from Kazakhstan overproducing.
Speaker 1: So that's interesting. So it's not really like I was,
Speaker 1: you know, my theory, which was this is another decisive
Speaker 1: move to bring oil producers globally in line. This is
Speaker 1: more of a gentle concession to some of OPEC plus's
Speaker 1: own members to try and have targets that are achievable
Speaker 1: that everyone can say is fair. It may very well.
Speaker 2: Be partly due to preserving market.
Speaker 3: Share, but the key, I would say, the key change
Speaker 3: is that Kazakhstan started to really ramp up production in
Speaker 3: the last two months. I mean, you could argue that
Speaker 3: OPEK plus could have increased production last year, right, why
Speaker 3: didn't they do so earlier? Because non OPEC plus suppli
Speaker 3: has been growing over the last few years already. Why
Speaker 3: didn't OPEK plus do anything right? Why do the opet
Speaker 3: plas only choose to take action one day after the
Speaker 3: LIB version day tarries were announced, which is such a
Speaker 3: sensitive timing. And I think that that's slightly because Kazakhstan
Speaker 3: started to ramp up production a lot, and that is
Speaker 3: a pretty recent devent, got it.
Speaker 1: I suppose sort of a broader question I have before
Speaker 1: we move on to was we're on the topic of OPEK,
Speaker 1: but this idea of you know, OPEK has operated on
Speaker 1: unity and discipline, and I wouldn't say, you know, it's
Speaker 1: ever been perfect, But I've always wondered whether that unity
Speaker 1: and discipline is possible in a world of falling oil
Speaker 1: demand or slow or slower growth, because that organization has
Speaker 1: always existed in a world where year on year oil
Speaker 1: demand pretty much every year has grown. So maybe this
Speaker 1: sort of discipline around production is has always been maybe
Speaker 1: easier to stomach because the growth has enabled high prices
Speaker 1: and without having to cut too hard. I realized, you know,
Speaker 1: there's this specific issue around non government independent producers operating
Speaker 1: in Kazakhstan, But is it maybe a omen of what
Speaker 1: could potentially happen with OPEK as oil demand growth slows
Speaker 1: with you know, the electric vehicles revolution and maybe even
Speaker 1: peaks and starts to decline. Is this unity really going
Speaker 1: to persist? Is it possible for OPEC to continue to
Speaker 1: operate the way it has in the last have many
Speaker 1: decades for the next you know, two or three decades
Speaker 1: given what we we fail about you know, global oil demand.
Speaker 3: Well, OPEC class producers are mostly export to growth regions,
Speaker 3: particularly in the East of Swiss, so that includes Asia,
Speaker 3: which by and large is still a key growth region
Speaker 3: for oil demand, so the pie for them is still expanding.
Speaker 3: We are right to say that globally oil demand growth
Speaker 3: is slowing, but it is still growing and we do
Speaker 3: not expect oil demand for geometrically to pay until like
Speaker 3: the early to mid twenty thirties as of now our
Speaker 3: current estimates, so that's still a long runway until we
Speaker 3: get to that point.
Speaker 2: I think that.
Speaker 3: OPAC class would still be incentivized to preserve the unity
Speaker 3: in the coming years, even in the coming months, even
Speaker 3: in the immediate term, because if they do not do that,
Speaker 3: everyone loses out right, well, all.
Speaker 1: Of OPEC plus loses out, I mean, everyone else could
Speaker 1: benefit from really cheap oil.
Speaker 3: Yeah, Like, basically, a lot of these member countries don't
Speaker 3: have these spare government reserves to tie through an extended
Speaker 3: period of very low oil prices, and so as much
Speaker 3: as they could go on a more aggressive strategy to
Speaker 3: really ramp up production to price out non OPEC past producers,
Speaker 3: they may not have the ability to do so. And
Speaker 3: it is in ORPEC plus self interest to continue to
Speaker 3: maintain united going ahead because it benefits all of them.
Speaker 2: Basically.
Speaker 1: Yeah, So what I'm I'm kind of hearing from you,
Speaker 1: We're in this moment of a lot of turmoil around
Speaker 1: oil markets. We've got the US both imposing tariffs, also
Speaker 1: taking positions on Venezuela, Russia, Iran. It's a very dicey moment,
Speaker 1: and then we have maybe on the horizon this prospect
Speaker 1: of a slow down in growth and then declining demand.
Speaker 1: So right now, the thing that you're saying is critical
Speaker 1: to OPEC plus that a lot of it's focused on
Speaker 1: is just building that unity because it's going to need
Speaker 1: it more than ever as the market dynamics change. Is
Speaker 1: that what I'm hearing is OPEC plus's current actions are
Speaker 1: not about flexing its muscles for the rest of the world.
Speaker 1: It's about growing that sort of consensus among the group.
Speaker 3: Yeah, precisely, when growth are slower, there is less room.
Speaker 2: For chaos right within the group.
Speaker 3: Yeah, because if our demand grows significantly and your production
Speaker 3: increas significantly, that impact wouldn't be as bed as if
Speaker 3: demand growth slows and supply grows significantly.
Speaker 1: Use an expression earlier, by the way, which I've never
Speaker 1: heard before. I presume this is an oil market thing,
Speaker 1: but I'm going to try and use this in conversation.
Speaker 1: Think you said east of Suez? Is that? Did you
Speaker 1: say east of Sewers? So speaking of east of Sewers,
Speaker 1: let's talk about China, the world's second largest economy, which
Speaker 1: obviously is a significant part of future demand growth, but
Speaker 1: is also a major driver of future demand destruction, particularly
Speaker 1: because of the country's integral role in the emerging electric
Speaker 1: vehicle market. So China's adopting electric vehicles at pace, how
Speaker 1: significant a shift are we seeing away from internal combustion
Speaker 1: engine vehicles.
Speaker 3: We actually track the seales of cars by different field
Speaker 3: type or what we call drive trains in China pretty closely,
Speaker 3: and with what we saw is that the sales of
Speaker 3: gasoline cars in China actually picked eight years ago in
Speaker 3: twenty seventeen, and it's been declining really really quickly since then,
Speaker 3: just under ten percent every year compounded, and that is
Speaker 3: if you include hybrid non pluging gasoline hybrid cars, right,
Speaker 3: So it's falling very quickly, and a lot of that
Speaker 3: seals have been replaced by battery electric vehicle and we
Speaker 3: include plug in hybrids as well in that category. And
Speaker 3: the reason why the seals, we think the sales of
Speaker 3: evs have been very strong, obviously, is due to policies
Speaker 3: upon in China, particularly something called the vehicle scrab page program,
Speaker 3: where the government actually provides this subsidy for consumers to
Speaker 3: trade in their old gasoline car for a new EV
Speaker 3: or even a smaller gasoline car. And they have actually
Speaker 3: extended that program for the rest of twenty twenty five.
Speaker 3: And they also did something else, so this scrappage program
Speaker 3: actually extends to trucks as well, but previously the subsidies
Speaker 3: did not cover energy trucks, but in the recent update,
Speaker 3: the government expanded subsidies to lergy trucks as well. So
Speaker 3: energy trucks is a key displacer if I could call
Speaker 3: it dead of diesel trucks, because obviously energy trucks have
Speaker 3: very high energy density, and the cause of operating energy
Speaker 3: truck in China has actually been lower than diesel trucks,
Speaker 3: which is why energy trucks got so popular recently. And
Speaker 3: with the extension of this scrappage program, it is going
Speaker 3: to accelerate the shift away from theseel trucks even faster.
Speaker 1: So in a way, there's a two ProMED assault on
Speaker 1: China's gasoline demand. One is electric vehicles, one is energy trucks.
Speaker 3: There are also other trends, particularly in the passenger car
Speaker 3: segment or in the road transport segment. So typically when
Speaker 3: the country grows, or rather in its early stages of development,
Speaker 3: the growth in passenger car mileage tends to grow in
Speaker 3: tandem with GDP or GDP B capital. And when we
Speaker 3: are when we reach a certain stage of majority, which
Speaker 3: we think China is right now, you know, people start
Speaker 3: to move to cities, and when you move to cities
Speaker 3: there are alternative modes of transport. You also get things
Speaker 3: like route optimization and whatnot, and growth in vehicle marlelage
Speaker 3: starts to fall behind economic growth, right, they no longer
Speaker 3: correlate strongly with each other, and this is also a
Speaker 3: key hit wind for China. There's also a second one
Speaker 3: where we actually found in our research. This is actually
Speaker 3: published in our last Electric Vehicle Outlook, where the annual
Speaker 3: mileage of an EVY battery electric vehicle it's actually sixty
Speaker 3: six percent higher than an Internet combustion engine car, an
Speaker 3: ice car, or a gasoline car. So and ev is
Speaker 3: able to meet a disproportionate share of road transport demand
Speaker 3: as compared to a gasoline car. And that's because a
Speaker 3: lot of taxis in China or right hailing services use
Speaker 3: an EVY because of the much lower operating costs. So
Speaker 3: all of these things mean that gasoline demand in China
Speaker 3: is likely to suffer structural decline. And we think that
Speaker 3: the country's gasoline consumption picked in doing dentitry so about
Speaker 3: two years ago, got it.
Speaker 1: So that's pretty significant the global oil market, with the
Speaker 1: world's second largest economy now having entered the phase of
Speaker 1: declining gasoline demand, which probably won't reverse ever given technology trends.
Speaker 3: Yeah, most likely for China. Obviously, the transitions accelerated to
Speaker 3: the policy, but there's also an interesting argument where because
Speaker 3: there is now an excess of supply of fuels which
Speaker 3: will be exported to economies around China, like Southeast Asia
Speaker 3: in particular, that's going to make gasoline cars or guessing
Speaker 3: fuel more affordable, right because there's a structural or capacity
Speaker 3: in the production of transportation fuels now. So so that
Speaker 3: could that could lower the cost of fuels at a
Speaker 3: pump for other regional markets, regional markets where it's still
Speaker 3: not yet electrified by a large extent, where where they
Speaker 3: still don't really have a lot of charging infrastructure to
Speaker 3: make the shift to electric vehicles.
Speaker 1: Yet that's interesting, I mean a final thought that could
Speaker 1: lead to a sort of almost like a race, what
Speaker 1: what can get cheaper quicker gasoline because of it's it's
Speaker 1: a structural oversupply as as demand is eroded versus the
Speaker 1: technologies that are eroding that demand, i e. Batteries ev charging,
Speaker 1: you know, as those industries continue to scale. And I
Speaker 1: don't obviously I don't think we can answer that question here,
Speaker 1: but it kind of is a nice point to end on,
Speaker 1: I think, because what you talked me through is a
Speaker 1: fascinating jigsaw of factors. We have. The short term impacts
Speaker 1: of these tariffs of the Trump administrations very I wouldn't
Speaker 1: say decisive because they are subject to change, but certainly
Speaker 1: very bold moves on the international stage which are creating
Speaker 1: uncertainty in the global oil market. Then we have OPEC,
Speaker 1: which is trying to go through a I guess a
Speaker 1: phase of a family counseling to try and rebuild the
Speaker 1: unity that it used to have. Particularly with all of
Speaker 1: these challenges, it's that the oil market is currently facing
Speaker 1: and are on the horizon. And then we have this
Speaker 1: slow burn of Chinese oil demand declining which is just
Speaker 1: beginning to get started. And that backdrop is fascinating as well.
Speaker 1: And it's really difficult to know how the sort of
Speaker 1: the knock on effect will be on both the future
Speaker 1: of the oil industry but on industries such as electric
Speaker 1: vehicles and so on and so on. So this is
Speaker 1: a really interesting time. I hope we get to do
Speaker 1: this podcast again in a year or maybe even less
Speaker 1: to sort of return to some of these themes and
Speaker 1: talk about what happened. But Wayne, thank you so much
Speaker 1: for joining us today.
Speaker 3: Yeah, thanks for having me. Tom suddenly look forward to
Speaker 3: the next podcast.
Speaker 1: Today's episode of Switched On was produced by cam Gray
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