World oil demand in 2012
Despite the economic turbulence in the OECD, oil consumption is following its usual seasonal pattern worldwide. The summer heat is putting pressure on oil usage among power plants, leading to extra use of fuel oil. Given the summer driving season, the heat and the shutdown of Japanese nuclear power plants, world oil demand has overcome the earlier notion of declining momentum and moved to a more stable trend. Oil use in the US, Japan and India has been growing for various reasons. Furthermore, demand in non-OECD countries is gaining some strength. The only exception is European demand, which continues its downward trend. Hence the world oil demand forecast is unchanged from the last estimate, with growth projected at 0.9 mb/d y-o-y to average 88.7 mb/d. Indian oil demand has been heavily affected by the massive electricity shutdown and summertime flooding. The use of independent power-generators has led to massive diesel usage countrywide. Furthermore, the shutdown of most of Japan’s nuclear power plants has led to excess use of crude and fuel oil burning. Since most of the push on oil demand has been related to incidents or seasonal events, this has presented an unclear picture for the fourth-quarter outlook. US and European demand will contribute a large share of the uncertainty in the fourth quarter.
Extreme drought in the US has affected the outcome of seasonal crops, upon which the biofuel industry is dependent. Due to the expected shortages in various crop harvests, not only would the biofuel industry feel the impact, but food shortages would also be prominent. US ethanol output sank to its lowest level in two years during July, as corn prices were hiked up, squeezing most of the biofuel industry into loss. Hence the US has reduced its biofuel blending mandate temporarily to avoid food price increases. The biofuel industry has long been accused of not only increasing food prices worldwide, but also of being less green than depicted since its inception.
OECD — North America
Economic slowdown in the US, along with higher retail petroleum prices, led to a 2.3% decrease in gasoline usage in July y-o-y. Gasoline consumption has been negative since May and decreased by 0.7% in the first seven months of this year. Although the country’s oil demand experienced a small push in early August due to industrial activity, the outlook for the rest of the year is not promising. The picture remains rather pessimistic, depending upon the development of the economy and the transportation fuel price levels.
The latest monthly US oil consumption data for May showed an increase of 1.9% y-o-y. This was the first rise after 13 contractions in a row, with the last observed growth occurring in March 2011. All the main product categories, with the exception of residual fuel oil and jet fuel, noted increases, and the bulk of these were seen in gasoline and distillate consumption, as a result of increasing industrial production and lower fuel prices at the time. The first seven months of 2012 were, however, generally quite disappointing for US consumption, with contractions in almost all product categories, and these were especially strong for residual fuel oil and distillates. The main factors influencing consumption during that period were ongoing economic concern, relatively high fuel prices and fuel-switching. As for the recent weekly data, this showed a contraction in US oil consumption of 0.5% in June and an increase of 1.6% in July. The latest available data for Canadian oil demand in May revealed a sharp increase of 5%, compared with last year; oil usage in transportation and industrial products dominated this increase. Almost one-third of the rise was related to gasoline consumption. Nevertheless, the country’s oil demand showed no growth at all in the first five months of the year. Also, Canadian oil demand is tied to the economic situation of the US.
The latest report on Mexican oil consumption in June noted an increase of around 1%, compared with the same month last year. All product categories were positive, except fuel oil, with increases in industrial fuels dominating. In contrast to the US, Mexican demand was positive for the first half of the year. Resulting from strong diesel demand, the country’s total oil demand grew by 2.4% y o-y. It is forecast that Mexican demand will end the year with growth of 30 tb/d, to average 2.1 mb/d. Despite the expected improvement in North America’s oil demand in the fourth quarter, total demand for 2012 is projected to decrease by 0.13 mb/d. US auto sales decelerated in July, indicating a slowdown in the overall economic outlook. Even though July sales fell heavily, by approximately 9% from a year earlier, this was still less harsh than the strong decreases of around 17% in June. Some of the reasons for this slowdown were declining consumer sentiment, as a result of higher unemployment, and unclear government policies on tax cuts for newly bought vehicles.
Nevertheless 2012 sales are expected to show an increase of 10% y-o-y. The higher demand for cars has resulted from last year’s lower base, in combination with the replacement of aging vehicles. Vehicle sales in Canada grew in July y-o-y for the tenth month in a row, at a solid 5%, as a result of numerous incentive programmes, such as financing loans and employee discount schemes. Moreover, an increasing number of consumers replacing their vehicles with revamped or fuel-efficient cars and trucks helped push up sales. According to the Mexican Automobile Industry Association, Mexico’s auto production and sales and exports grew strongly, by 14%, 15% and 22% respectively y-o-y, in June. Exports to Brazil continued to play a major role in the development of the already robust status of the Mexican auto industry.
OECD — Europe
The European debt crisis still overshadows the continent’s economic perspective. The negative sentiment is spreading across the region, leading to declining economic activity and hence reducing the use of energy in all sectors. European oil consumption contracted for the tenth month in a row in June. June oil consumption in Germany, France, Italy and the UK fell, as a result of decreasing demand for industrial fuels and weak industrial activity. Nevertheless, the short- and medium-term development of European oil consumption will be mostly determined by the continuing debt problems in several European economies. The European ‘Big Four’s’ oil demand decreased by 0.12 mb/d in June, compared with June 2011. The Big Four’s consumption of industrial fuels and transportation fuels accounted for the bulk of these decreases. Should the current economic situation persist, the future decline in European energy demand would ease off.
For 2012, oil consumption is expected to shrink by 0.36 mb/d, as a result of the economic turbulence in several countries in the region. According to the latest figures from the European Automobile Manufacturer’s Association, European new passenger car registrations decreased for the ninth consecutive month in June, by 2.8% y-o-y — however, this was somewhat milder than in previous months. During the first five months of 2012, sales were down by 6.8%, as compared with last year. The picture among the major markets was diverse. Italy (– 24.4%) and Spain ( 12.1%) recorded double-digit downturns, while the UK and Germany posted growth of 2.9% and 3.5% respectively.
As for the rest of the year, the European auto market will almost certainly be dominated by economic concern and austerity measures in several countries, especially in the southern part of the region. Furthermore, the future trend for smaller, more fuel-efficient cars will dominate across the region. The 2012 expectations still show a decreasing market, of as much as 6% y-o-y, depending upon the magnitude of the sovereign debt crisis in the region.
OECD — Pacific
Record rainfall in July caused flooding and landslides in southern Japan. This affected the country’s oil demand in that region. The decision to restart some nuclear power plants to meet peak electricity demand has slightly affected the country’s total consumption of crude and fuel oil. The latest monthly data for June was once more dominated by strong increases in the direct use of crude and residual fuel oil, as a result of the nuclear plants’ partial shutdowns. As a result, Japan’s use of direct crude and residual fuel burning for electricity production is expected to continue throughout 2012. Power plants are using crude — only those crudes with a low Sulphur content — fuel oil and LNG for electricity power-generation. Moreover, driven by the increased mileage and number of vehicles, as a result of government incentives, as well as starting from a very low baseline, transportation fuel consumption increased too. In South Korea, oil demand rose strongly in May with an increase of a remarkable 11.5% y-o-y. The strongest additions were observed in gas/diesel oil, fuel oil, jet fuel and gasoline. Unlike with the rest of the OECD, OECD Pacific oil consumption is expected to grow in 2012, by 0.32 mb/d. The bulk of the increase will result from direct crude/fuel oil burning for electricity-generation and substituting nuclear plants. Driven by strong tax incentives and subsidies, as well as coming from a low baseline, Japanese auto sales continued to rise strongly in July, by a remarkable 37.5%. This increase started during the fourth quarter of last year. Japanese auto demand is expected to rise strongly also for the whole of 2012, partly due to higher sales in tsunami-hit areas and government efforts to stimulate demand. The incentives especially favour hybrids, pure electric cars and other vehicles that employ advanced technology and efficiency. Given the low baseline and government incentives, the upcoming month’s auto sales are expected to show high growth. South Korean domestic car sales contracted by a slight 0.5% y-o-y in July, while, for the same month, exports also grew by 0.5% y-o-y.
India has experienced a massive power shut-down, as the country is trying to keep up with summertime’s high power demand. The crisis with the grid left 600 million people without electricity. Excessive uploading of the electricity line has crippled the total system a number of times, and this has led to the use of independent diesel-operated power-generation. As a result, diesel usage increased by 9%. Such an event has been seen not only in India, but also in China last year. It is anticipated that the country will see future partial power shutdowns and hence further diesel use.
In June, Indian oil demand hiked up sharply by 7.2% y-o-y; this was the strongest demand since February. Oil use peaks in the summer in India, as the season’s power demand increases and the agricultural season gets into full swing. Almost two-thirds of this increase resulted from diesel demand. The country consumed 1.5 mb/d of diesel in June. Earlier forecasts indicated that Indian oil demand would grow by 3.5%; however, due to the recent summer crisis, the country’s oil demand growth might reach and slightly exceed y-o-y growth of 4%. According to the Society of Indian Automobile Manufacturers, domestic passenger car sales increased robustly for another month, by 8%, during June y-o-y, despite higher fuel prices and higher excise duties on all cars.
Indonesian oil demand grew by 4.3% in May y-o-y, adding another 55 tb/d to the country’s total oil demand. More than 90% of this increase was related to gasoline. Gasoline demand in Indonesia grew by 11%, reaching around half a million barrels. The country’s oil demand for the first half of the year is forecast to grow by 2.1% y-o-y. As for the entire year, Indonesia will consume 1.4 mb/d, denoting growth of 22 tb/d.
Strong usage of industrial fuel pushed Thailand’s oil demand up by 7.2% in May y-o-y. Industrial use of fuel oil and diesel has been the engine behind Thailand’s oil demand this year. The country is forecast to consume 30 tb/d more oil this year than last year.Given the healthy economies in most of Other Asia, along with the power crisis in India, Other Asia’s oil demand growth is estimated at 0.2 mb/d y-o-y. In spite of the decline in LPG and fuel oil usage in Saudi Arabia, transport fuel use rose sharply, leading to total growth of 12% in June y-o-y. Furthermore, the demand for electricity, as a result of the hot summer, pushed up crude burning by 26% in June alone. The country’s electricity demand hit a record this summer. In the first six months, its oil demand rose by 4.9% y-o-y, adding another 0.1 mb/d to total oil demand. Iran’s oil demand stabilized in May, showing growth of 7.9% or 0.1 mb/d. Most of the growth was related to gasoline consumption. In the first five months of the year, the country’s gasoline usage went up by 22% y o-y. However, it is forecast that its oil demand will be flat this year, averaging 1.8 mb/d. Middle East oil demand is forecast to grow by 2.7% in 2012, to average 7.8 mb/d.
Brazil’s oil demand growth in the second quarter was a down by a third. However, the second quarter has low seasonality by nature. Brazil’s 2.1% GDP growth is calling for extra oil this year, estimated at 80 tb/d. Energy-related alcohol has had a rising trend so far this year. The country’s average consumption of energy-related alcohol was estimated at 0.16 mb/d in the first quarter of the year. Developing countries’ (DC) oil demand growth is forecast at 0.6 mb/d in 2012, averaging 28.3 mb/d.
Despite its high oil imports, China’s oil demand eased in June, as half of its imports ended up in the country’s stockpile during that month. However, as the summer peaks, the country’s demand is expected to follow suite in July and August. Chinese demand seasonality is prominent in the third quarter, when the transport and agricultural sectors kick in during the same season. Its demand grew by only 2% y-o-y in June and this was less than half of what was seen in May. June is considered a low season, as far as Chinese oil consumption is concerned. Nevertheless, gasoline usage picked up by 11% in the same month to average 1.9 mb/d. Despite this weakness in China’s demand in the second quarter, the country’s consumption of oil in the third quarter is expected to maintain its normal trend. Its demand in the third quarter is expected to grow by 0.4 mb/d y-o-y. In the first half of the year, China used 4% more oil than it did the same time last year. The second half of the year is forecast to maintain the same growth ratio.
Data from the China Association of Automobile Manufacturers shows that the country’s automobile sales grew by 10% in June y-o-y, attributed to stronger demand for sedans, SUVs and multipurpose vehicles. Meanwhile, overall sales for the first six months of 2012 rose by a mere 5.5%. This is due to the expiry of tax incentives for small cars and the authorities' efforts to combat traffic congestion and pollution in major cities. As of the beginning of this month, Guangzhou (after Beijing, Shanghai and Guiyang) became the fourth city in China limiting car sales, in order to alleviate traffic conditions and pollution. There are indications that more cities (e.g. Shenzhen, Dalian and Hangzhou) will release a policy to limit car purchases by clamping down on vehicle registrations.
World oil demand in 2013
Despite the similarity in world GDP between this year and next year, global oil demand growth is estimated to be almost 0.1 mb/d lower compared to 2012. The economic picture is vague and the horizon full of turbulence. There is much uncertainty surrounding the world’s oil-use estimate in 2013. Next year’s oil demand forecast is based on assumptions, such as higher GDP, the same level of retail petroleum prices as this year and uncertainty in the total world economy during the year. The downward risk potential has greater probability in the forecast than the upward risk one. Therefore, the gloomy picture could reduce the world oil demand growth forecast by 20% next year.
Furthermore, US oil demand, which is the main player in next year’s world oil demand, can change the rhythm of the oil demand pattern. This, of course, would be dependent on the health of the economy and international oil prices. For 2013, US auto sales are expected to slow down to growth of approximately 3%, reflecting lower expectations in the US and European economies. Canadian vehicle sales are projected to increase by only a slight 1%, as a result of rather pessimistic market sentiment. As a result of gloomy expectations about the development of the economy, 2013 is forecast to be another declining year for the European car industry at approximately the same level as in 2012. Demand for new cars in Japan is expected to grow again strongly, however at to a lesser degree than this year’s 8% y-o-y. The outlook for the South Korean market is largely dependent upon developments in the US and Euro-zone economies, while Chinese domestic auto sales are forecast to show an increase of around 11%. World oil demand is forecast to continue its growth during 2013 to reach 0.8 mb/d y-o-y and average 89.5 mb/d.