Electric vehicles were expected to be the avatars of the global energy transition — vehicles so new, efficient and gleaming with advanced technology that consumers would turn away from fossil fuels and onto the life raft of climate activism without realizing they'd even taken the step.
That transition hasn't gone according to plan. High EV prices have made the conversion largely an elite game. That, in turn, helped make the energy transition a target for politicians. President Donald Trump pledged to build his presidency on a "drill, baby, drill" energy policy to lower oil prices and make America energy independent.
But the critical element needed to spur oil companies to drill is strong oil prices. Strong oil prices require either rising demand for oil or lower supplies. Rising sales of electric vehicles work against that scenario. Even the oil industry is tamping down expectations.
'Drill, Baby, Drill' Gets Underway
At Houston's CERA Week energy confab this past week, a chorus of oil industry leaders began to warn on limits to U.S. production. The voices included Vicki Hollub, chief executive of Occidental Petroleum, who projected a production peak between 2027 and 2030.
Continental Resources founder Harold Hamm also chimed in, among others, warning that U.S. oil production is starting to plateau. Hamm was a top donor to Donald Trump's 2024 presidential campaign, backing Trump's "drill, baby, drill" stance on U.S. energy policy.
The message the executives delivered — the rhetoric of scarcity — was heard briefly after Russia's invasion of Ukraine led to sanctions against its oil sales. Other than that, it's been absent from the oil conversation for years.
But that narrative will need to overcome what has long been presented as a comfortable surfeit of U.S. oil production capacity. It must also undo the realities of weakening demand.
Although EV sales have lagged some expectations, experts across the energy sector contend that EV and hybrid vehicle sales in China and the U.S. are now indisputably eating away at the growth in oil demand.
The important point to understand, says Enverus energy transition analyst Carson Kearl, "is that it's having an impact on demand growth more than it's having an impact on existing demand. You're not getting any of the growth that you would be getting if you didn't have EVs."
Overall U.S. sales of passenger cars and light trucks topped out in 2016. U.S. gasoline demand has now held well below its peak for more than five years. In China, demand for diesel hit its highest level in 2023. And many, including China's largest oil company, forecast the country's overall oil demand will peak by 2027. Does that mean oil stocks may also be at or near their peak?
Oil Prices Vs. Producer Discipline
U.S. oil producers — from Exxon Mobil and Chevron to EOG and Diamondback Energy — have turned away from the industry's old-school race for production growth. Instead, they are adding production mostly through consolidation, using acquisitions to grab a larger piece of a shrinking pie.
Today, the industry is focused on drilling less and getting more out of each hole drilled to achieve a lower cost per barrel. Companies then turn the spare cash flow back into share buybacks and dividends, aiming to shore up investor support.
That is exactly what the investment community long wanted: an end to the cycles of boom and bust that defined the oil trade for more than a century.
What does that shift mean for oil stocks in the long run? Can Trump coax the industry out of its equilibrium and spur producers to drill?
And the bigger question is, will growth in oil demand ever return to what it was, or is the damper from EVs and hybrid vehicles permanent?
Demand And Oil Stocks
Over the past 12 months, U.S. oil prices poked above $80 a barrel only twice, trading far below where they'd spent the prior two years. (Spot U.S. prices spiked as high as $123 a barrel in the weeks after Russia's Ukraine invasion.) As a consequence, over the past year, half the industry groups in IBD's oil and gas stock sector lost ground.
Among the few that gained, the royalty trust industry group stood out with a gain of nearly 115%, through Wednesday. Its gain was largely due to a 12-month 156% rally by Texas Pacific Land. Royalty trusts are very defensive plays that rely on the steady, predictable production of aging wells rather than the more volatile new finds that produce short-lived surges of hydrocarbons.
Next in line, the also-defensive transport/pipelines industry group gained 20% in the past year. Producers and transporters of liquefied natural gas are in the group. Golar LNG, for example, has a 12-month gain of 47%. But that is a result of the world's need for natural gas, not oil.
Vertical Violations: Why You Should Recognize This Bear Market Indicator
Among the big-name oil stocks, Chevron is flat vs. a year ago and trading well below its 2022 peak. Exxon is down a few clicks and below its highs from 2023. The U.S. explorers and producers group, which tends to run very hot when oil prices are rising, has a one-year decline of 4%.
The stocks in the group that do look good for now are natural gas producers. Some of the fastest-moving "oil" stocks include Comstock Resources, up 117% since last March. Antero Resources swung 38% higher in that same time frame. Both concentrate entirely on natural gas.
If oil stocks are to return to the days of the "drill, baby, drill" oil bonanzas, the industry needs one clear ingredient: an increase in demand vs. supply. Demand growth requires increased consumption.
The Great Oil Demand Engine, China, Sputters
China is the engine that has fueled oil consumption and demand growth in recent years. But those days could be coming to an end. The country has implemented incentives driving a surge in the adoption of electric vehicles. That surge whittled away the need for gasoline and diesel.
Analysts generally believe China's oil use won't peak for several years. They also say petrochemicals — namely, the plastics industry — are poised to pick up the demand slack when gasoline and diesel use drops.
Among the biggest oil stocks in China, Sinopec and CNPC are each down less than 10% over the past 12 months. Still, CNPC is almost 60% off its 2015 highs. Sinopec trades a little more than 45% off its highs from 2018.
Kearl says EV and hybrid adoption in the U.S. and China point to a global plateau in oil demand, particularly for gasoline and diesel. China's consumption of gasoline hit a high in 2021, the International Energy Agency reports. There is a growing consensus among analysts that the country's consumption of 3.8 million barrels per day in that year may have marked a peak.
Kearl expects global gasoline demand to peak between 2026 and 2028, remaining relatively flat in those three years at around 20.5 million barrels per day. He sees a drop to 18 million bpd by 2034. Most of this will be driven by China and to a lesser extent the U.S., according to Enverus estimates.
If EV sales hadn't gobbled up their share of auto sales, Kearl says, oil demand would rise by 3.5 million barrels per day by 2030 — just from gasoline use alone in Europe, India, Asia, China and the U.S. That would add up to a demand increase of nearly 1.28 billion barrels per year.
Gas Demand Taps The Brakes
The U.S. already hit its gasoline consumption peak before the Covid-19 pandemic, Kearl says. That was just after U.S. auto sales peaked in 2016. Demand has moved sideways since then but may be set to slip.
The Energy Information Administration forecasts a gasoline demand increase in the U.S. of 1.3 million barrels per day this year, slipping to an increase of 1.1 million barrels per day in 2026. Before the Covid-19 pandemic, the 10-year average increase was 1.5 million barrels per day.
What To Do When Growth Stocks Backtrack To Test Buy Points
"We're still seeing demand growth, but likely over the coming second half of this decade, that demand growth is going to gradually shrink," Matt Smith, lead oil analyst for the Americas at Kpler, told IBD. "Specifically, you will likely see gasoline demand peaking sooner because of electric vehicles and other behavioral patterns."
Global oil consumption was more than 100 million barrels per day in 2024. Smith expects oil demand to remain around 100 million barrels per day through 2040.
China: The EV Dominates And Oil Demand Is Peaking Soon
CFRA Research sees crude oil demand in China as having "hit a wall in 2024," growing a mere 200,000 barrels per day. The research firm forecasts the same growth in 2025. For context, China oil demand rose by 500,000 barrels per day in 2017, another 500,000 in 2018 and 700,000 in 2019.
China is the world's largest oil importer. Over the past 30 years, it accounted for half of all growth in the world's oil demand. In 2022, 72% of China's total crude oil supply was imported, according to the International Energy Agency.
When To Sell Growth Stocks: This Could Be Your No. 1 Rule
China's largest oil company, China Petroleum & Chemical Corp., or Sinopec, forecast in December that the country's oil consumption would peak by 2027.
The Fastest-Growing Gas Guzzler
The Organization of Petroleum Exporting Countries has a more bullish outlook for China. Despite last year's decline in imports, OPEC forecasts that China's consumption in 2025 will grow to 2.5 million barrels per day more than it was in 2023.
As China has slowed, India has become the driving force behind global oil demand growth. In 2023, India overtook China as the world's most-populous nation. Transportation fuels are the critical component in its demand picture, according to the U.S. Energy Information Administration.
While there are many pieces of the puzzle, analysts agree that China's focus on EVs, and its regulations incentivizing consumer EV purchases, are big reasons why oil demand growth is slowing.
The Fossil Fuel Wars: S&P 500 Giants, AI Data Centers And Russian Sanctions
Another factor: trucks switching from diesel to liquefied natural gas. And, most important, the rising number of electric buses, taxis and delivery vehicles helped to depress sales of petrol and diesel.
Sales of both road fuels peaked in 2023, according to China National Petroleum Corp., the parent of PetroChina. It says road fuel demand will fall by 25% to 40% over the next decade.
Kpler analyst Smith says China is a good example of mass EV adoption eroding oil consumption.
"Our expectation is that both gasoline and diesel demand peak out (in China) in the next year or so," Smith said. "The reason for gasoline is because there has been such an emphasis from the government on subsidies, not just in the last couple of years but for more than a decade, to incentivize that switch."
A Prop For Oil Prices: Petrochemicals
OPEC in December cut its demand outlook for 2025. The oil-producing cartel continued to cap its production in an effort to support oil prices. Key OPEC+ partner Russia said it produced below its reduced quota for the month.
Yet Amin Nasser, president of Saudi Aramco, said at a conference in Riyadh in late 2024 that the potential remains for fresh oil demand in China, despite the EV shift. He pointed out that solar energy and wind power both require large amounts of petrochemicals.
"For 5 megawatts of wind-generated power you need 50 (metric) tons of plastics. For every electric vehicle, you need 200 to 230 kilograms of plastic. Even in solar panels, 10% comes from fiber and so on. So for the transition to happen, you need more oil," Nasser said at the Future Investment Initiative conference.
Meanwhile, the IEA continues to forecast that China's oil demand will peak by the end of the decade, despite the strong growth projected in China's petrochemical industry. The IEA says that from 2019 to 2023, 100% of the global oil consumption growth was due to petrochemicals in China.
China Vs. U.S. EV Sales
The IEA estimates that around a quarter of China's increase in petrochemical demand over the past five years has gone into production of wind turbines and solar panels. It says "essentially all" of the growth in China's oil use going forward will be from the petrochemical sector.
The IEA sees China's oil consumption falling from 16 million to 17 million barrels per day at present to about 12 million per day by 2050.
More specific to EVs, the IEA sees a more significant fall in oil use for road transport. By 2030, the agency says, 75% of cars sold in China will be EVs. In 2024, total electrified vehicle sales in China, both battery EVs and hybrids, were 11 million units, up 40% from 2023, according to CFRA Research data. Sales of hybrid vehicles were up 81% and battery EVs increased 19%, according to the firm.
About 40% of new vehicle purchases in China are electric, according to Kpler. Meanwhile, in the U.S. that number is increasing, but it's just gotten to 20%, and that includes hybrid vehicles as well.
When To Sell Stocks: Big Break Below 50-Day Line Can Mark End Of A Huge Run
U.S. EV Penetration And The China Consumer Divide
In the future, Enverus pegs U.S. gasoline demand holding below its 2019 high of around 9.5 million barrels per day, slipping to 8.5 million barrels per day in 2030.
Abhi Rajendran, director of research at Energy Intelligence, says EV and hybrid vehicle penetration, at only around 3% of the 200 million vehicles on the road in the U.S., is well below what's needed to drive a precipitous drop in oil consumption.
EVs are "definitely going to be single digits as a percentage of the total (U.S.) fleet at least at the end of the decade," Rajendran said. "Once that number gets closer to 10%, that's when you'll start to see a more noticeable decline (in gasoline use)."
In the U.S., The Coolest Car Wins
Meanwhile, Kearl says the EV sales growth curve for China will continue to be sharper than for the U.S., simply based on consumer preference and the price of an EV compared with an internal combustion vehicle.
"In order to meaningfully deviate from the 10%-14% of new (U.S.) sales that hybrids and EVs are right now, you probably need the EVs to be cheaper than an equivalent ICE (internal combustion engine) car," Kearl said. "We think that you're only now hitting the parity point where they're roughly the same in terms of cost."
Kearl adds that this could change with advancements in autonomous driving, or Tesla's robotaxi product "that creates an overwhelming incentive to go electric."
So far, EVs "have been somewhat effective in mitigating demand growth for fossil fuels, not reversing it," Kearl said. "I would say the argument for driving electric is shifting from 'this is the socially responsible thing' to 'we're actually just making these vehicles really cool, and you should buy them because they're better.'"
Meanwhile, in China, it simply comes down to economics.
In China, EVs are "infinitely cheaper than having an ICE vehicle," Kearl said. A number of popular EVs there carry price tags between $10,000 and $20,000.
In addition, Kearl says, "your fuel is going to be way cheaper. Even if it's coal-fired electricity, it's going to be cheaper, and then the actual capital spend on the car is cheaper, so it's just a win across the board."
Please follow Kit Norton on X @KitNorton for more coverage.
YOU MAY ALSO LIKE:
Here's How This Sell Signal Saved Stamps.com Investors From Big Losses
Learning How To Pick Great Stocks? Read Investor's Corner
AI Is Fueling A 'Nuclear Renaissance.' Bill Gates And Jeff Bezos Are In The Mix.
How The IBD Methodology Can Help You Improve Your Investing Decisions
