China’s economy is reopening, the US and Europe have avoided a much-feared recession, and the International Energy Agency (IEA) has raised its forecast for global oil demand growth to a record of almost 102 million barrels per day for 2023. 

US shale oil output growth is still modest, meanwhile, and OPEC supply dipped last month. OECD oil stocks remain low by historical standards, and Western nations have just tightened sanctions against Russia, the world’s largest petroleum exporter. 

It seems like a recipe for a very tight oil market. And yet the Brent oil price is flat year-to-date and 15 percent lower than its level on the eve of Russia’s invasion. What’s going on?

Here’s a suggestion: what if oil is starting to price in a negative demand shock from the global energy transition? 

We believe that the booming market for electric vehicles, or EVs, will reduce oil demand substantially and weigh on prices much sooner than most expect. The structural shift in global energy markets has already begun.

Professor Rudi Dornbusch once said, “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.” If ever there was a situation that exemplified his words, it is now with the global adoption of electric vehicles.

Around the world, only 120,000 electric cars were sold in 2012. In 2022, sales averaged close to 200,000 per week. Ten million new EVs were delivered last year, an increase of 55 percent from 2021. EVs made up 13.0 percent of all light vehicle sales, compared to 2.2