The Electric Future is Driven by Oil

Oil prices got back to pre-pandemic levels and our price target of $60 to $70, on recovering demand and OPEC production discipline, helped by the Texas freeze. We are now lowering our target to $50 to $60, on the announcement that the US will engage in negotiations to renew the Iran nuclear deal, which could result in massive oversupply as Iran’s production comes back on the market. On a more secular basis, the threat to prices is the electrification of mobility, egged on by government mandates. Politicized rhetoric is exaggerating the demise of internal combustion engines. China’s failures in promoting electric vehicles shows that hybrids, with an internal combustion engine and a battery-powered drivetrain, are a necessary “bridge vehicle” to an electric future. In China in 2035, pure internal combustion vehicles will have no share of new car sales – but an internal combustion engine will be the dominant partner in hybrids that will be more than half the market, leaving oil a significant mobility fuel