Oil: How Worried Should The RBA Be? | Nucleus Investment Insights
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- Опубліковано 18 вер 2024
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The oil price has been under pressure in recent weeks, poor demand, lots of supply, increased electric vehicles and weak demand from China.
Join us in this week's podcast as Nucleus Wealth's Chief Investment Officer, Damien Klassen, and Chief Strategist, David Llewellyn-Smith, run through these issues and look at the path for oil.
In particular, what will weak oil prices and the effect on inflation do to RBA forecasts?
View the presentation slides here:
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The information on this podcast contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management. Nucleus Wealth is a business name of Nucleus Wealth Management Pty Ltd (ABN 54 614 386 266 ) and is a Corporate Authorised Representative of Nucleus Advice Pty Ltd - AFSL 515796
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EXCELLENT
A crashing oil prices tells me the RBA will be cutting rates before they think due to global recession.
There are several problems with the projections of EV use.
1. Much of the industrial world's potential buyers don't just need to pay the cost of a car, they also first need to buy the detached house. There simply aren't the charging options available outside the home.
2. MOST EVs (outside China) are bought as a 2nd vehicle, with people keeping their ICE vehicle as a primary for any longer trips, hotter or colder weather (where aircon is required, which eats a LOT of power), or where they want convenience of refueling. It's going to take a huge culture shift to change this, as well as much greater convenience of charging options outside the home.
3. The economics of EV charging stations are weird. They require massive upfront investment (grid upgrades) if they want to try charge multiple vehicles at a time; cars need to sit there MUCH longer than for ICE refuelling; there is a big cable theft problem in many locations; and they are often subject to very high electricity rate pricing from providers, due to hitting peak demand time threshholds. To make them work, any providers would have to charge a premium power rate that works out much more expensive than diesel or petrol/gasoline for the end user. So, charging stations are effectively unprofitable, and will only work if provided as a (rationed) service by some state entity (at public expense).
4. For economic and industrial security reasons, Europe and North America don't like the idea of buying their EVs from China. They are currently stuck on the idea of a more protectionist local manufacturing model for EVs, except that much of the supply chains (especially for battery components, refining of materials including rare earths etc.) still goes through China. In any case, trying to "reshore" EV manufacturing means having to build capacity locally, which requires a high up-front investments, often using existing car companies which also have high debt levels and pension costs to pay, all of which keep car costs very high.
5. The types of EVs which MIGHT work are either non-plugin (small battery) hybrids, or simply very small EVs which have small batteries and a small range of course, but are great for local city trips. (Ebikes and buses would be even better for personal transportation - different issue.) These smaller vehicles are simply completely unpopular in North America (and increasingly in Europe), as a cultural issue. Unfortunately, larger vehicles use a lot more resources in manufacturing, which are going to require a LOT more mining and environmental destruction. All of that begs the question as to why EVs are being promoted, if they would end up destroying the environment anyway.
Quite apart from all that, cars simply don't use that much of the world's oil demand, compared to trucks. Assuming all manufacturing (and mining) could be done without using fossil fuels (a big ask), we'd still only reduce oil demand by perhaps 20% through EVs. It's a partial temporary small help, but not a solution if you want to either move to Net Zero or try survive a Peak Oil scenario.
Weak demand for oil in China suggests that the country is struggling. Analysts seem to have missed the fact that 50% of new cars sold in China are EVs, and there are booming sales of EVs in Asia and Latin America. China is also increasing its use of gas. EVs cost less to operate.
The future of EVs in China is still unpredictable. There are an increasing number of EV fires (projected to be something like 42k EV fires per day if China's current car fleet were to ever be fully replaced with EVs), which also means increasing restrictions on parking options and recharging station locations. Safety is becoming more important than price in China. These issues might or might not be solved over the next decade - and the future car market trends will also depend on whether there are any alternative options. Who knows; we might even see a return to use of bicycles?
Time to quit smoking dave