Opec's cheap oil strategy drives up bigger vehicle sales

[LONDON] As Opec ministers gather in Vienna, they may notice more sport utility vehicles on the streets of the Austrian capital than on previous visits.

Last year, SUVs outsold any other type of passenger vehicle in Europe for the first time, according to auto industry consultants JATO Dynamics. The trend has continued in 2016, with demand for SUVs such as the Hyundai Tucson and the Renault Kadjar accounting for a quarter of sales in the biggest European countries.

Europe is a mirror of what's happening across the world. From China to the US, drivers are buying bigger vehicles, while sales of fuel-efficient hybrids struggle.

For Saudi Arabia, Iran and other members of the Organization of Petroleum Exporting Countries, due to meet on Thursday, the sharp increase in sales of gas guzzlers is good news: It means stronger demand for gasoline and diesel for years to come.

"The trend of fuel efficiency improvement of the last few years could be stopped by low oil prices," said Christof Ruhl, head of research at the Abu Dhabi Investment Authority, the emirate's sovereign wealth fund, and a former chief economist at BP Plc.

Today in the US, light trucks, vans and SUVs account for 60 per cent of total vehicle sales - a level only reached briefly in 2005, when Brent crude, the global oil benchmark, averaged US$55 a barrel. The International Energy Agency said in May that less-efficient vehicles, including four-wheel drives, "remain very much in vogue, a consequence of persistently lower retail pump prices."

In 2008, when oil prices averaged US$100 a barrel, the share of gas guzzlers in US total vehicles sales dropped at one point to just 43 per cent.

Popular light trucks such as the Ford F150, the Chevrolet Silverado and the Dodge Ram achieve as little as 17 to 22 miles per gallon compared with as much as 50 to 55 miles per gallon for smaller, more efficient cars. The most popular SUVs in Europe also achieve relatively high mileage.

With larger vehicles hitting the roads and Americans driving longer distances as the economy recovers, US gasoline consumption is set to rise to a record high in 2016, according to the Energy Information Administration. US gasoline demand will average 9.3 million barrels a day this year, surpassing the peak set in 2007, the EIA said in its most recent monthly report.

BLOOMBERG