World oil demand in 2007
World oil demand in July followed a typical summer seasonality trend. July oil demand grew the most in the USA, China, the Middle East, and other Asia, especially India. Agriculture, transport, and power plant fuels are the products that are mostly consumed in summer.
As a result of anticipated weak oil demand in other OECD countries, world oil demand for the third quarter is forecast to grow by only 1.5 mb/d y-o-y to average 85.68 mb/d. Given current world economic growth along with the anticipation of normal winter, world oil demand growth for 2007 is forecast at 1.3 mb/d or 1.5%, a slight upward revision from the last MOMR reflecting additional oil needs for Japanese power plants. Oil demand in the second half of the year will show stronger growth of 1.6 mb/d.
Higher US retail gasoline prices have not hurt gasoline demand as badly as anticipated but did leave some impact. Hence, US gasoline consumption in the high season of July increased by only 1.0% or 0.1 mb/d y-o-y to average 9.7 mb/d. US oil demand in July grew by 2% or 0.421 mb/d y o-y to average 21 mb/d. Fuel oil grew the most, reaching 0.22 mb/d or 4.9%. Jet fuel/kerosene consumption was slightly dented by higher prices, showing a decline of 3.5% y-o-y in July. For the first seven months of the year, total US oil demand inched 1.48% or 0.30 mb/d higher. Assuming that the next winter will be normal, then US oil demand will receive a boost from heating oil and fuel oil consumption to reach an estimated average growth of 0.36 mb/d y-o-y for 2007. Canadian petroleum product sales in June were not as strong as in May. Apart from gasoline consumption, June is a low oil demand season in Canada. Agricultural consumption of diesel pushed Canadian oil demand upward in early summer. Mexican oil demand has been growing sharply in 2007. Accelerated by strong consumption in June, Mexico’s oil demand in the first half of 2007 grew by 0.06 mb/d y-o-y. Mexican gasoline and fuel oil consumption increased the most in June reaching 0.05 mb/d of growth each.
With the exception of gasoline consumption, the OECD normally sees low seasonal demand in the third quarter. North America’s third-quarter y-o-y oil demand growth is estimated at 0.2 mb/d to average 25.63 mb/d. Total OECD countries’ y-o-y oil demand growth in 2007 is estimated to increase by 0.1 mb/d to average 49.29 mb/d.
With low seasonal oil consumption time in Europe, Italy’s oil demand declined by almost 2.9% y o-y to average 1.7 mb/d in June. Due to the low demand for electricity and the possibility of fuel switching among power plants in Italy, fuel oil demand in June was down by 8%. Affected by the efficiency improvements, gasoline demand in Italy declined by a strong 7.3% y-o-y to average 0.29 mb/d in June. A strong decline in diesel consumption in Germany’s industrial
sector led to a 0.3 mb/d y-o-y decline in domestic deliveries to average 2 mb/d in May. Domestic oil product sales in the UK were flat y-o-y to average 1.57 mb/d. The increase in transport fuel was offset by declining demand in the industrial sector.
As forecast, transport diesel consumption in the EU for 2007 is expected to grow by over 3%. Increasing sales of efficient diesel engines in Europe caused demand for diesel to grow in the past few years. New diesel cars are expected to outsell gasoline cars this year by 5.5%. Due to the above-mentioned decline in Europe, the OECD Europe demand for the second quarter was revised down by 0.17 mb/d y-o-y. OECD Europe oil demand growth for the third quarter is estimated to be flat y-o-y, averaging 15.57 mb/d.
An earthquake in Japan in July put pressure on authorities to shut down nuclear power plants in the region until safety measures were taken. This move tentatively increased crude and fuel oil consumption in Japan by around 0.1 mb/d. Furthermore, the country halted the natural gas production from the Yoshii field which will have an effect on further crude consumption among power plants. In general, the loss of some nuclear power generation forced Japanese power plants to lift their thermal power generation using feedstock such as coal, crude oil, fuel oil and LNG. In addition, the summer heat forced power plant operators in Japan to increase oil consumption in order to meet increasing electricity demand.
In anticipation of third-quarter oil demand, South Korea’s crude imports rose 4% to average 2.4 mb/d in June. Unlike Japan, South Korea’s oil demand is somewhat stable with minor growth so far this year. Unlike Japan, South Korea’s crude imports moved up 1.3% y-o-y to average 2.4 mb/d in the first six months of 2007.
Due to the sudden increase in demand in Japan, the OECD Pacific third- and fourthquarter oil demand was revised up to show an increase of 0.07 mb/d and 0.1 mb/d y-o-y respectively.
As a result of fuel switching to coal and natural gas among power plants in Taiwan, fuel oil consumption has been on the decline so far this year by 17% y-o-y. Taiwan’s oil demand declined by 4.8% to average 0.81 mb/d in June y-o-y. Due to the inauguration of the new railroad and the adjustment of retail petroleum product prices, the domestic airline consumption declined by more than 10% in the first quarter of 2007 leading to a 3.5% decline in jet fuel consumption in June y-o-y, and both gasoline and diesel have fallen by 2% and 5.5%. Taiwan’s oil demand declined by 2.8% for the first half of the year. Furthermore, due to the increase in retail transportation fuel, Taiwan is planning to subsidize fuel for public transportation. Most Asian countries have abolished petroleum product price subsidies in the past three years. Booming Middle East economic activities are keeping oil demand at its usual strength. Transport fuel in the Middle East along with the demand for fuel oil by power plants resulted in strong growth in both Iran and Saudi Arabia by 0.1 mb/d each in the second quarter y-o-y. Due to a hot summer in the region, the demand for electricity is high; therefore fuel oil demand is forecast to be strong. Hence, Middle East third-quarter y-o-y oil demand growth is forecast at 0.32 mb/d to
average 6.67 mb/d.
India’s oil demand bounced back from an unusual decline in May to show strong y-o-y growth in June of 4.6% or 118,000 b/d to average 2.7 mb/d. India’s oil demand January-June 2007 grew by 0.12 mb/d or 4.6% to average 2.8 mb/d. Agriculture, transport, and industrial use pushed diesel consumption up 72,000 b/d or 7.8% y-o-y in the first half of 2007. In percentage terms, gasoline grew by a stunning 10.2% adding 22,000 b/d to the six-month y-o-y consumption. Other Asia third-quarter y-o-y oil demand is forecast to follow a high seasonality and grow by 0.19 mb/d to average 8.83 mb/d.
Developing Countries oil demand is estimated to contribute the most to total world oil demand growth in 2007, reaching a growth of 0.66 mb/d to average 23.94 mb/d.
China’s apparent oil demand in June rose a moderate 0.24 mb/d or 3.2% y-o-y. Although oil imports were high reaching 19%, product imports were low and exports strong which led to weak growth in apparent oil demand for June — the weakest since February. China’s net oil imports increased by 5.7% or 0.2 mb/d in June y-o-y. Weaker fuel oil demand in China is attributed to the increased consumption of coal by power plants so far in the summer. Although the last part of the agricultural season which ended in June was rainy, expanding construction pushed diesel demand up in the first half to remain the most consumed product representing more than one third of total Chinese oil consumption.
Despite the international pressure over China’s clean air, the country delayed the introduction of Euro 3 fuel standard until July 2008. Apparently, refineries’ upgrade is not ready; however, China has decided to move the introduction of Euro 4 standard forward by three years to set a new deadline of 2010.
As a result of high demand for electricity in the agricultural, travel, petrochemical and construction sectors, China’s third-quarter oil consumption reached a seasonal high. Having lower product imports, refinery runs were also high in June. New car sales in China are still roaring, but were below the forecast level of a 30% increase. China’s car sales rose 23%, putting almost half a million new cars on the streets in May. The subsidized E10 blended gasoline and diesel reduced oil consumption last year by a minor 35,000 b/d in China.
China is rethinking its SPR capacity. The country is considering expanding its SPR to 120 days of net oil import equivalent. The study suggests that the public sector will cover 75% of the reserve and the rest will be covered by the private sector. China is working on curbing down the fast-growing aviation industry, which will affect jet fuel consumption next year. China is expected to consume 0.25 mb/d of jet/kerosene in 2007.
China’s third-quarter apparent oil demand is forecast to grow by 0.5 mb/d to average 7.7 mb/d y o-y.
As a result of a new increase in export tax, along with the improving regional economic activities, FSU’s apparent oil demand is showing a marginal increase in the third quarter. FSU’s y-o-y thirdquarter oil demand is forecast to grow by 0.04 mb/d to average 4 mb/d.
World oil demand in 2008
World oil demand is forecast to grow by 1.3 mb/d in 2008 to average 87.06 mb/d, with no major changes from our last MOMR estimate. Transport and industrial fuels are expected to show the strongest sectorial growth in 2008. Non-OECD countries will account for 1.1 mb/d or 79% of total world oil demand growth in 2008. OECD oil demand growth next year will mostly come from North America. North America’s oil demand is forecast to grow by 0.3 mb/d y-oy to average 25.9 mb/d in 2008.
China, the Middle East, and Other Asia are expected to contribute 0.8 mb/d or 62% to next year’s world oil demand growth.