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Will Alternative Fuel Vehicles Decrease Crude Oil Demand Growth?

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Jan. 4 2016, Updated 10:29 a.m. ET

Alternative fuel vehicles growth rate

OPEC (Organization of the Petroleum Exporting Countries) estimates that only 6% of passenger cars and 5.3% of commercial vehicles will be running on non-oil fuels by 2040. OPEC estimates that alternate fuel vehicles won’t gain importance due to high purchase costs for electric vehicles compared to gasoline vehicles.

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Accessibility to alternative fuel vehicles

Electric vehicles aren’t expected to gain significant market share in the near future. This is due to the following:

  • serious convenience issues
  • battery performance will differ in very hot and cold conditions
  • very high purchase cost will keep customers away

Natural gas vehicles will have the advantage in terms of performance as well as price compared to electric vehicles. But accessibility to refueling points in most countries will limit the adoption of natural gas–driven vehicles.

As we saw in the first part of this series, by 2040, passenger vehicles will increase by 1 billion in developing countries. But the share of alternative fuel vehicles accounts for just 6% of passenger cars. This means the preference for gasoline-driven cars is more compared to alternate fuel cars. This could be due to the following:

  • lack of infrastructure in developing countries
  • less affordability in developing countries, pushing customers toward gasoline-driven vehicles

The impact

Due to the affordability of gasoline-driven cars and easy access to refueling points, customers are preferring gasoline-based cars. This increases crude oil demand. An increase in crude oil demand increases revenues for crude oil producers such as Apache (APA), EOG Resources (EOG), Hess (HES), Marathon Oil (MRO), Murphy Oil (MUR), Oasis Petroleum (OAS), and Pioneer Natural Resources (PXD).

Marathon Oil (MRO) accounts for 2.3% of the Energy Select Sector SPDR ETF (XLE).

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