Javier Blas
Petrol was meant to be Exhibit A of the energy transition. And it is – but not how the green intelligentsia ever anticipated. Rather than becoming the fuel to display the earliest and most pronounced peak in demand as the world embraced electric vehicles, petrol is instead signalling the endurance of fossil-fuel consumption.
The stronger-than-expected demand comes even before significant pro-petrol regulatory changes announced in both the United States and Europe in recent days take effect. In Washington, US President Donald Trump has rolled back the fuel-economy targets set by his predecessor Joe Biden. Instead of achieving 50.4 miles per gallon (81 kilometres per 3.8 litres) by 2031, US cars will only need to meet 34.5 miles per gallon. Earlier, Trump hit the EV sector by removing federal subsidies.
European Commission president Ursula von der Leyen, meanwhile, this week bowed to intense pressure from Germany and Italy to abandon an effective ban on the sale of petrol and diesel cars beyond 2035. Brussels, which initially mulled delaying the ban five years to 2040, ultimately decided to abandon it completely without setting a new target.
In London, the British government has announced a new tax on EVs starting in 2028 that could reduce sales by hundreds of thousands of vehicles.
Put this all together, and it means the energy market’s barrel counters will need to increase their petrol forecasts for the rest of the decade. It’s an exercise they are getting used to.
After the pandemic, the International Energy Agency said petrol demand wouldn’t ever surpass its 2019 level. The theory was that as EV cars became more popular, appetite for gas guzzlers would be “disproportionally” impacted. “This means that the fuel is likely to exhibit the earliest and most pronounced peak in demand” of all elements of the oil market, the IEA wrote in an influential report in 2023. But demand quickly surpassed the pre-pandemic peak and kept on growing.
Rather than becoming the fuel to display the earliest peak in demand as the world embraced electric vehicles, petrol is signalling the endurance of fossil-fuel consumption.
Last year, petrol consumption posted an all-time high of 27.36 million barrels a day. The IEA initially thought again that was the peak, and suggested consumption would drop in 2025. Instead, year-to-date petrol demand has jumped to a fresh record high of 27.62 million barrels a day.
As things stand, the peak has been delayed already by six years, to 2025 from 2019. And I wouldn’t be surprised if, once forecasts are updated, it’s pushed even further forward.
Surprisingly, some of the greatest thirst for petrol comes from Europe, supposedly a region that’s an energy transition champion, but one where consumers are shifting from diesel cars into brand-new petrol and plug-in hybrids. Spain and France have seen consumption reaching heights unseen for two decades.
So demand is probably running more than 700,000 barrels a day higher than what was thought to mark the consumption zenith. That may not sound like a lot, but it equals the total oil demand of a medium-sized European economy such as the Netherlands.
The surge is particularly significant because it happened despite four notable headwinds: Western governments subsidising EV adoption; high petrol prices, particularly between 2022 and 2024; the persistence of people working from home post-pandemic; and China’s weak economic growth.
Ultimately, petrol demand will decrease as people swap their fossil-fuel cars for battery-powered ones. The peak will probably arrive a decade later than initially thought, perhaps by about 2029 or 2030.
For now, the consumption surge indicates that the fancy graphics governments use to point to declining fuel use are a mirage. Exhibit A shows how disorderly the energy transition will be, firing in fits and starts and delivering illogical trends like record EV sales and record petrol consumption happening side by side. After the regulatory changes in Europe and the US, those perplexing moves will be even harder to track.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.
Bloomberg
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