Oil markets at risk as European countries plan ban on fuel vehicles
The plan by the French government to ban all sales of petrol and diesel cars by 2040 is sending ripples through oil markets and the automotive sector. If the move succeeds, the implications for oil markets would be enormous because Europe goes where France goes.
Emmanuel Macron the newly elected president of France says he is determined to make the country carbon neutral by 2050. But this is scarcely the first European president planning to cut back on oil. Norway already has plans to phase out petrol and diesel car sales by 2025.
The French government will join other European countries in the planned ban of petrol and diesel vehicle sales. Besides Norway, Netherlands also set 2025 to ban cars and 2030 for Germany. In Asia, India also wants to ban petrol and diesel vehicles by 2030.
France with 66 million people and a major car manufacturer is already working towards this future with many anti-diesel policies forcing people to rethink their engagement with vehicles signalling a cultural shift and lifestyle changes.
The country has already set up three zones – Paris Respire (Paris Breathes) – areas that seem village-like, such as Montmartre and Marais neighborhoods—where vehicles are banned on Sundays. Other countries are also setting up similar arraignments in preparation of a future without oil.
According to Nicolas Hulot, France’s environment minister, the ban is part of a plan to drop investment in gas and diesel projects altogether.
To encourage popular support, the French government will offer its citizens financial incentives to scrap diesel cars built before 1997 and gas-powered cars built before 2001. The idea is that people will give up their internal combustion cars in place of alternative energy transport.
However all these is coming at a time when oil markets are becoming increasingly bearish largely due to a ramp-up in shale drilling and production rebound in OPEC member countries like Nigeria and Libya.
Analsyts at Goldman Sachs in a recent note said they expect this will leave prices trading near $45/bbl until there is evidence of: a decline in the US horizontal oil rig count, sustained stock draws or additional OPEC production cuts.
The analysts believes that given that the market is now out of patience for large stock draws and increasingly concerned about next year’s balances, price upside will need to be front-end driven, coming from observable near-term physical tightness.
Oil prices have struggled to find the floor after rising to over $50per barrel a month ago, but analysts believe that cyclically, the balance of risks is nonetheless shifting from the downside to the upside.
The upset in the oil market is gain for electric carmakers like Tesla and will no doubt mean further investments into fuel-less mobility.
Battery technologies are increasingly getting better and this will further bolster other regions into boosting alternative energy technologies raising the possibility for an emissions-free travel.
It is this reality that is driving oil producers like Saudi Arabia towards making elaborate plans to diversify their economies away from crude oil. Other countries are reviewing their fiscal terms to make investments easier as the competition for investment dollars hits up.
ISAAC ANYAOGU