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China's EV Plan Could Cause An Oil Price Crash

Oil prices could decline to $35 a barrel next year if China and India speed up the adoption of electric cars to cope with severe pollution, Steen Jakobsen, Chief Economist & CIO at Saxo Bank, told UAE’s news outlet The National in an interview published on Wednesday.

“I think down the road, this whole electrification which is a big issue in 2018 will really kick off,” Jakobsen, who is known for making bold predictions, told The National in a phone interview.

“The reason I think it will be big is that the single biggest issue in China is pollution and a way to deal with it is to get electric cars. On top of that, India has a similar problem,” Jakobsen noted.

Earlier this year, China and India unveiled plans to dramatically accelerate the adoption of EVs, which has prompted the IEA to take notice and promise a review of its long-term oil demand forecast.

Also this year, the EVs market became crowded with Tesla’s new unveils, along with the legacy automakers and truck makers who announced big investments and shifts to more electric car production—including Ford and GM. Earlier this month, Ford signed a deal in China to establish the 50/50 joint venture Zotye Ford Automobile Co Ltd that will offer a range of stylish and affordable all-electric vehicles for consumers in China.

Earlier this week, Shell entered into a partnership with a consortium involving some of Europe’s largest carmakers to build a network of EV fast-charging stations across the continent. Initially, the charging stations will be installed at 80 highway Shell sites, beginning in 2019.

Related: 54 Things You Didn’t Know About Natural Gas

Saxo Bank’s Jakobsen told The National, referring to India and China:

“The two most populous nations in the world will lead the charge towards electrification and as that happens investment into batteries and alternative energy will explode because this is going to be the single biggest concentration of growth in one sector since the internet. If you get better batteries, you reduce the demand for fossil oil.”

Jakobsen’s prediction for 2018 is bold, compared to most analysts who see oil prices at $40 to $60, although there are some projections that the price of oil may hit $80 next year.

By Tsvetana Paraskova for Oilprice.com

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