The rapid rise of electric vehicles in China is starting to impact the global oil market, with Brent at risk of falling to $68 per barrel in 2025 if crude demand in the world's second largest economy remains flat. Oil prices have shed most of 2024's gains at a time when the risk of supply disruptions remains real due to the intractable wars in the Middle East and Eastern Europe. U.S. crude oil and Brent have pulled back 14% and 13.4%, respectively, from an April peak when Israel and Iran nearly went war. The U.S. and global benchmarks are now up just 3.8% and 1.9% this year. The culprit has largely been softening demand in China, which has overshadowed highly volatile geopolitical tensions in key energy-producing regions that would typically support higher oil prices. Oil demand in China grew by 200,000 barrels per day in the first half of 2024 compared with the year-ago period — three times slower than the average of 600,000 bpd between 2016 and 2019, according to Daan Struyven, head oil strategist at Goldman Sachs. And demand in China this summer has contracted compared with the prior year, according Struyven. Even bullish OPEC has lowered its demand forecast for 2024 on softness in China, raising questions about whether member states can afford to increase production starting in October as they promised. Demand in China is slowing due to the rapid rise of electric vehicles and trucks powered by liquid natural gas, Struyven said. China's consumption of petrochemicals to make plastics is also normalizing after surging in the wake of the pandemic, he said. "Some of the slowdown is to be expected with slower China GDP growth and the rapid rise in EVs," Struyven told CNBC's " Squawk Box Asia " Wednesday. But "some of the slowdown is unexpected — this switching to LNG away from diesel and this normalization in petchem demand is somewhat sharper." The oil market's pillar weakens China has been the pillar of growth for the oil global market over the past 20 years, Bank of America's Francisco Blanch told clients in an Aug. 16 note. Demand surged from 4.6 million barrels per day in 2000 to 16.8 million bpd currently as China soared to become the world's second largest economy and largest importer of crude, according to Bank of America. But this growth story could be fading. For the first time ever, new electric and hybrid vehicle sales outpaced gas-powered cars in China on a monthly basis in July, according to the China Passenger Car Association . While the association's data has been questioned in the past, Goldman and Bank of America agree that new energy vehicles now make up about 50% of new car sales in China. These vehicles reduced oil demand in China by 500,000 barrels per day in the first half of 2024, according to Goldman. Trucks in China may now be consuming 700,000 bpd of LNG, about 20% of the total demand in oil-equivalent barrels from commercial trucks in the country, according to the bank. Oil demand for vehicles in China is expected to peak in 2025 as a consequence, decades ahead of other emerging market economies, according to Goldman. If demand in China remains flat, Brent prices could fall to $68 per barrel by the end of next year, according to the investment bank. While China is the furthest ahead, global gasoline demand is slowing as electric vehicles are adopted around the world. Gasoline demand is expected to grow by 180,000 bpd this year compared with 800,000 bpd in 2023, according to Bank of America. In 2025, growth will slow to 150,000 bpd. This presents a problem for investors. Oil becomes attractive when the return is 14% or more, according to Jeff Currie, former global head of commodities research at Goldman. "With what's going on in China, those structural concerns, it doesn't pay to own oil – which is the key problem," Currie told CNBC's "Money Movers" Thursday.
