It is no secret to anyone that oil prices have been changing dramatically recently. Different political situations are taking place worldwide and oil prices seem to be more unstable than ever. Multiple threats to the use of oil pop up every day, such as wars between nations and environmental problems.

One thing that not many people has taken into account is the fact that every day more individuals are moving towards using cleaner and renewable energies. This is probably one of the main situations that may be affecting the prices of oil currently and in the future to come.

Perhaps, a few years ago car manufacturers didn’t care much about electric vehicles since they seemed expensive a lame. However, today they stopped being lame and their prices of lithium batteries dropped in order for the sales to go up. Thanks to this, oil producers started understanding electric vehicles as a huge threat to oil prices.

Many people may wonder how this is possible. Nevertheless, the answer is pretty basic and it is related to the fundamentals of any commercial transaction. Here, we will explain how electric vehicles may have an impact on oil prices.

How does the market work?

Let’s say a given product becomes trendy. Then, many companies start producing it to meet the market’s needs. This product then becomes expensive and others try to copy it unsuccessfully. Eventually, the product stops being trendy and becomes necessary. Then, prices keep on going up and people need to pay more to get that product. Years pass, and companies who produce it become powerful, wealthy and greedy.

But, what happens when a different product appears in the scene? A product that is equally good, way more sustainable and cheaper. Then buyers become crazy and start buying the brand new product. In time, prices for the old product need to go down in order to keep sales afloat.

This happens because the more demand there is, the higher the prices become. The lower the demand, the cheaper the prices.

Oil has been the number one player for the past century. It has set its own prices and has controlled the offer and demand game sometimes in a harsh way for consumers. It became necessary not only for vehicles but also to produce certain goods that we use every day (like plastic).

Image courtesy of xlibber at Flickr.com

Despite all this, oil’s privileged condition has changed during the past years. Lately, more industries produce goods with recycled or alternative materials and, vehicles powered by electricity are becoming the new cool kid in town. This last item is starting to affect the price of oil dramatically since fewer people are actually demanding its use to power their vehicles and are moving to electric vehicles.

What does the OPEC think about all this?

The OPEC (Organization of the Petroleum Exporting Countries) is a recognized and very important organization that among its multiples tasks is in charge of regulating the oil prices.

This organization has predicted that the consumption of oil is going to keep reducing thanks to the increase in the consumption of electric vehicles. Some of the biggest oil producers in the world such as Exxon Mobil Corp are starting to feel the consequences of this, and when they compare the results of last year with what they are dealing with today, things do not seem to be that easy for them.

If we think about it in numbers, what the OPEC forecasts for the years to come are that by the year 2040, the consumption of oil will reduce in 8 million barrels due to the acquisition of electric vehicles. These barrels are equivalent to more than what is produced by Iran and Iraq combined today.

As we said earlier on this article, if the demand for oil reduces, its prices will vary. Meaning that oil will become cheaper and the price per barrel will continue to drop.

The real impact of Electric Vehicles

Currently, we can’t see the real impact electric vehicles are having in the oil market. However, it is expected that in the decades to come, nearly $700 billion dollars that are yearly produced by the oil industry will reduce as the global fleet of electric vehicles increases.

Nevertheless, this drastic change in the way we move has an impact not only on oil producers but also in other industries, such as car manufacturers. As a consequence, the usage of electric vehicles is going to be hard to set in the short term. It is expected that it will take place gradually as the prices for lithium-powered batteries becomes cheaper for more people in the world.

It is important to keep in mind that trends and the market’s preferences change fast in terms of innovation. Last year is was predicted by the OPEC that in 20 years there will be at least 46 million electric vehicles in the world. Nowadays, this number has changed and it is believed that over 530 million vehicles will be on the streets during that same year.

Related: 4 factors that affect oil prices you need to know about by Suzzanne Uhland

* Featured Image courtesy of Tony Hall at Flickr.com