Bloomberg, Fitch Predict Oil “Death Spiral” As Early As 2023

Someone once said that financial markets respond to only two factors — fear and greed. In February, Bloomberg warned readers that the next collapse of oil prices will occur within 10 years, maybe sooner, due to an explosion of electric cars on the road. In a new study released this week, Fitch Ratings, one of the three largest financial rating services in the world, claims that grid-scale battery storage could exert negative pressure on utility industry stocks. Corporate stocks and bonds issued by utility and automotive companies represent ¼ of all corporate debt in the world — $3.4 trillion, to be exact.

The Bloomberg team presents its findings in the chart below. It shows when the oil collapse is expected, assuming three different scenarios for the growth of electric cars. The selloff could begin as early as 2023 or as late at 2028. No one can predict the future, but Bloomberg offers this advice: “One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every year that follows will bring more electric cars to the road, and less demand for oil. Someone will be left holding the barrel.”

BNEF oil crash chart

The Fitch Ratings report warns of an “investor death spiral.” First, savvy investors will cash out their utility and auto investments, then the rush for the exits will begin in earnest. Bloomberg says the meltdown will begin in 2028. Fitch puts the date at 2023, based on “an acceleration of the electrification of transport infrastructure,” which it says “would be resoundingly negative for the oil sector’s credit profile.”

The International Energy Agency (IEA) is also fanning the flames of economic doom.

“‘Global oil demand growth is slowing at a faster pace than initially predicted,’ it said in its September oil market report. ‘We see a slowing down of oil demand growth in China,’ explained IEA chief Fatih Birol, and a ‘major reason’ is that cars are rapidly getting more fuel-efficient.

“Birol notes the efficiency trend will continue since many growing countries “such as India, such as (countries in) South East Asia, have not yet set the fuel economy standards.” EV adoption speeds up the overall trend.”

It was only a glut of ~2 million barrels a day that initially triggered the epic crash in global oil prices in 2014. EVs could create an equivalent glut “as early as 2023.”

Regular visitors to Gas2 won’t be surprised by any of these dire warnings. We applaud the expansion of the EV market. But it’s easy to see how electrification of the transportation sector coupled with the rise of distributed renewable power is going to cause some serious financial pain. It’s no wonder the people affected are pushing back with all their might against the inevitable.

The lesson for us as individuals is to vote for representatives who will advance our point of view, not people who are paid off by powerful corporate interests. To paraphrase a common anti–drunk driving theme, “Please vote responsibly.”

Source: Think Progress

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.