World oil demand in 2011
The oil market has been volatile, making future oil demand estimates hard to predict. An unsteady world economy is negatively affecting the oil market and imposing a high range of uncertainty for the short term. The most influencing factor is the fate of the US economy for the next 12 months. US oil demand has been in the negative since May, causing year-to-date total US oil demand growth to become almost flat. Another factor that might add more ambiguity to the country’s oil demand is the summer driving season. Giving the easing oil prices, transport fuel demand might exceed expectations, leading to more upward risk. As for Japan, the effect of its natural disaster has been hammering the country’s economy, hence putting a huge downward pressure on the country’s oil demand.
The Chinese oil situation is also creating more uncertainty as the government is placing more emphasis on energy efficiency, while the booming economy is calling for more energy. Furthermore, anticipated electricity shortages will push for more diesel use by independent power generators. Other Non-OECD countries are increasing the use of oil, offsetting the decline in the OECD region.
That said, as mentioned in the last MOMR, it is too early to alter the existing forecast for world oil demand as risks are nearly balanced with regard to upward and downward movements. However, should higher international oil prices persist, or should further setbacks in the OECD economies occur, then it might impose a stronger reverse elasticity on oil demand, putting more weight on the downward risk. This risk might be translated into a reduction of current growth by 200 tb/d. World oil demand is estimated to grow by 2.1 mb/d in 2010 and by 1.4 mb/d in 2011, averaging 88.1 mb/d.
Biofuel subsidies have been a huge burden on many OECD governments and, with recent financial troubles; these governments are having a hard time allocating more subsidies to such a costly industry. Recently in the US, biofuel subsidies have become a hot topic before the country’s Senate. The Senate is considering whether to continue injecting life into such a money-draining industry at a time of huge budgetary deficit, or to use the funds more efficiently in other sectors of the economy. The cost to the government is billions of dollars, which could otherwise be efficiently utilized in supporting the country’s economic recovery.
OECD – North America
According to the latest weekly US oil demand data, the country’s oil consumption has been in the negative since May, squeezing the second quarter into the red. Gasoline usage declined by 1.7% in the second quarter, as opposed to a normal growth of 1.6%. Industrial products are also not performing well, reflecting the slowing economy. The weakness in the second quarter caused the first half of the year’s growth to be flat. US oil demand is the wild card in this year’s world oil demand growth assessment. Despite this pre-summer trend, the total year forecast aims at a growth of a little over 0.1 mb/d.
Moreover, the latest monthly US oil consumption data considerably revised the picture for April, showing a substantial yearly contraction of 1.5%, the largest observed since January 2010. The main reason for this decrease was the lower consumption of motor gasoline, which was attributed partly to higher fuel prices and thus lower mileage, as well as pessimistic expectations about the economy. In addition, growth in distillate consumption was very weak, while jet/kerosene, residual fuel oil and propane/propylene were continuously on the plus side during the first fourth months of 2011. As mentioned during last month’s MOMR, the development of the US driving season is certainly a challenge for the fate of US oil consumption during the summer. Unfortunately, up-todate indications call for a rather downward risk.
May Mexican oil consumption was down by 2.2%, compared with last year, a fact that is basically due to decreasing consumption in all products, with the exception of diesel, and largely fuel oil and gasoline; lower industrial activity is reflected in the non-growth consumption of industrial fuels. The latest available April Canadian oil demand data indicated a weaker y-o-y growth in the first quarter, due to less consumption in heating fuels, while, at the same time, consumption of industrial and transportation fuels remained strong.
Affected by the recent decline in US oil demand, the North American oil demand forecast was revised down by 0.06 mb/d to show growth of only 0.1 mb/d. In 2012, North America is projected to grow by only 0.15 mb/d.
US car sales rose by 7.1% in June; however this increase was weaker than expected as consumers were faced with higher prices for many vehicles after US automakers reduced deals on their vehicles. In addition, automakers raised prices of their cars and trucks after the catastrophic Japan earthquake that reduced inventories. The segments of small- and mid-sized cars marked the biggest increases, while sales of large and luxury cars contracted. Furthermore, as a result of sales incentives, sales of SUVs recorded remarkable increases of almost 25% y-o-y. During the first six months of 2011, the US auto market grew by 13%, with SUVs being the segment with the highest increase. The latest available Canadian data shows auto sales in Canada falling by 3.8% in May as high gasoline prices influenced truck sales; however as the Canadian auto market usually lags behind the US, June is expected to see a reverse of May trends. According to the Mexican Automobile Industry Association, Mexico’s auto sales, exports and production grew robustly in May by 11.4%, 21.0% and 19.0%, respectively.
OECD – Europe
European oil consumption continued to fall during May, reaching minus 0.09 mb/d, with declines occurring in France, Italy and the UK. The short-term development of European oil consumption will be most determined by the continuing debt problems in several European economies, in particular Greece, Ireland and Portugal, as a further deterioration of these economies will substantially influence the whole region. The European Big Four oil demand decreased by 0.07 mb/d in May, compared with May 2010. However, French and UK oil consumption were down by 2% and 0.9%, respectively.
The Big Four oil consumption of transportation fuels continued to be in the minus during May, while industry fuels were on the plus side. Given the deep dip in the second quarter, the region’s total contraction in oil demand stands at 0.7 mb/d in 2011. For 2012, oil consumption is expected to shrink again, as a result of the rather pessimistic economic developments in a slightly higher magnitude of 0.06 mb/d.
According to the latest information by ACEA, European demand for new passenger cars in May contracted by 7.1%, compared with the same month in 2010, while the first five months of the year saw a fall of 0.8% over the same period last year. During the first months of 2011, most markets expanded, including Germany and France. However, during the same period, the British, Spanish and Italian markets contracted, leading to an overall slight decrease for the whole region. During May, all major markets increased with the only exceptions being Spain and the UK, which showed contractions of 23.3% and 1.7%, respectively. Demand for new cars was up in May by 22.0% in Germany, 6.1% in France and 3.6% in Italy.
OECD – Pacific
The impact of the catastrophic earthquake on Japan became evidently weaker in May as the latest monthly data implies, showing a decrease in oil consumption y-o-y of only 0.07 mb/d. All product category contractions were smaller, and for some, like diesel and LPG, consumption grew slightly. Furthermore, natural gas seems to be the largest alternative to the nuclear problem for the production of electricity, as crude direct burning was flat during May in comparison with last year. As mentioned previously, further development of Japanese oil consumption during 2011 is heavily dependent upon the speed of resolving the ongoing nuclear crisis at the Fukushima plant.
Unfortunately, up to now, there is no concrete information as to how long it will take until the nuclear crisis is resolved. Plant by plant, Japan’s nuclear power industry is gradually shutting down. At least 35 reactors across the country are out of operation at this time. Many are down for routine inspection, maintenance, refueling, or for other reasons, with no immediate prospect that they will be allowed to restart.
In South Korea, April data indicated a sharp decrease in the consumption of all products, largely fuel oil and LPG, as a result of fuel switching. As a result of a better-than-expected performance in Japan oil usage, OECD Pacific oil consumption is now expected to be almost flat during 2011 and 2012, while projections are heavily dependent upon the speed of recovery in Japan. Japan’s auto sales continued to fall by 22% in June 2011 y-o-y. It remains to be seen when the Japanese auto industry will recover from the effects of the March earthquake; the most optimistic views consider this to take place late this year.
Indian oil demand has been picking up, reaching average growth of 4.3% or 146 tb/d in the first five months of the year. May’s growth was the highest this year. Diesel demand was the reason behind the strength in India’s oil demand. Diesel is used mainly by the transport, industrial and agricultural sectors. The country’s oil usage inched up by 5.5% or 180 tb/d in May y-o-y. Diesel demand alone contributed 63 tb/d to total demand, followed by LPG with 56 tb/d of growth. This strength in demand came about despite the 23% decline in fuel oil usage.
India’s oil consumption averaged 3.4 mb/d in May. India’s oil demand accounts for one-third of Other Asia total oil demand. As mentioned last month, India’s retail petroleum product price increase is not expected to dent the country’s oil demand this year. The booming Indian economy is calling for more energy this year; hence, India’s oil demand forecast growth is expected to maintain our earlier assessment, exceeding annual growth of 4% y-o-y, averaging 3.4 mb/d for 2011.
Indian domestic auto sales in May grew by only 7.0% over the same month last year. This is the lowest observed monthly growth since May 2009. The market trend is heading toward a downturn, caused by a combination of the following factors: the impact of Japan’s earthquake, higher fuel prices, and rising inflation.
Thailand’s oil demand is maintaining its strength with the support of all products except fuel oil. Latest data indicated growth of 12.2% in April. Industrial usage of LPG pushed demand for such products up by 20% y-o-y. Diesel demand grew by 7% as well. The industrial sector increased total oil demand in the first four months by 6%, averaging 0.93 mb/d. However, oil demand in Taiwan, the second-largest oil-consuming country in Other Asia, has been in the negative since the start of the year. Most of the decline is attributed to the industrial sector, while the transport sector’s oil usage is barely above flat level. Taiwan’s oil demand in the first four months of the year declined by 3% y-o-y. Given the recent strength in India’s oil demand, Other Asia oil demand growth is forecast at 0.25 mb/d in 2011, averaging 10.4 mb/d.
Summer heat pushed Saudi oil demand up by 7.8% in May y-o-y. Summer is the high season for oil consumption within the Middle East as electricity demand peaks and, therefore, fuel oil and diesel needs skyrocket. Other factors that are moving up the region’s oil demand are economic activities, mainly construction projects. Contraction in gasoline and fuel oil usage dampened Iran’s oil demand by 2.9% in May y-o-y. Middle East oil demand growth is forecast at 0.2 mb/d in 2011, averaging 7.4 mb/d.
The rebound in Brazilian oil demand in May changed the trend which has been seen since March. The growth in the third and fourth quarters is expected to be much stronger than what was seen in the second quarter. Brazil’s gasoline consumption already passed the half-a million barrel per day level and is expected to maintain its growing mode. Developing Countries’ oil demand growth is forecast at 0.62 mb/d y-o-y, averaging 27.5 mb/d.
China’s net oil imports exceeded expectations, increasing by 1.2 mb/d or 27% in May y-o-y. This has led to an increase in the country’s apparent oil demand. China’s summer oil demand has been following an expected trend, reaching high growth of 6.5% or 600 tb/d y-o-y in May. It is expected that the country’s third quarter oil demand will perform strongly, reaching growth of 570 tb/d and denoting an upward revision of 0.04 mb/d. China’s oil demand has always surprised analysts, despite the official announcement of curbing the country’s oil usage. Despite last month’s announcement of applying a new tariff on electricity, in order to reduce demand ahead of the peak season, the expectation is that the country might have a supply shortage.
Hence, independent diesel-power generators will be used. Diesel demand will be affected to a certain degree. The product that grew the most in the first six months of the year is diesel. Diesel demand grew by more than 0.4 mb/d y-o-y, reflecting activities in the industrial, transport and agricultural sectors. Gasoline demand growth was the second-largest growing product after diesel. This came about despite the government’s limitations on new car registrations. Gasoline inched up by 10% in the first half of the year. This strong growth trend is expected until year-end. However, government efforts to close the gap between domestic and international oil prices might have a slight effect on the consumption of certain products. Resulting from strong economic growth, China’s oil demand is expected to grow by 0.62 mb/d in 2011, averaging 9.6 mb/d.
Data from the China Association of Automobile Manufacturers (CAAM) showed that China's automobile sales slowed to only 10.9% growth in June from a year earlier. This trend is continuing for the third month in a row, after the Chinese government introduced limits on new car procurements, stopped offering incentives and imposed a new 10% tax on new car sales. The Chinese auto industry is also being affected by the impact of Japan’s earthquake, higher fuel prices and rising inflation.
World oil demand in 2012
The global economic recovery has been facing turbulence across the OECD and is placing a great rate of uncertainty for next year. World GDP for next year is forecast at a slightly higher base than this year. It is forecast that next year’s oil demand growth will take place in the non OECD region, mainly China, India, the Middle East and Latin America. By sector, the industrial and transport sectors will contribute the most to expected oil demand growth.
Petrochemical activities are expected to push oil demand up next year in the non-OECD region. US gasoline demand is expected to be back in its normal growing mode; however, it will remain the wild card for 2012 as it could also be negatively influenced by the country’s economic turbulence, state policies and retail petroleum product prices. World oil demand is forecast to continue its growth during 2012 to reach 1.3 mb/d y-o-y, averaging 89.5 mb/d.
Like this year, industrial fuel, mainly diesel and naphtha, will be the products growing the most in world oil demand in 2012. The industrial sector will be the key oil consumption driver. The year 2012 will not enjoy the low baseline seen in 2011; however more stable economic activities will push gasoline and jet fuel consumption up. Yet, the bulk is coming from the growing transport sector in non-OECD countries, as well as some amounts from North America and the Pacific. Non-OECD countries’ oil demand growth of 1.28 mb/d will account once again for almost all the world’s oil demand growth next year, whereas the OECD will show a moderate demand increase.
The OECD region’s oil demand is projected to show a slight increase with Europe and the Pacific showing a decline of around 0.05 mb/d each. North America’s oil usage is expected to increase by 0.15 mb/d. The decline in OECD Europe oil demand comes as a result of debt problems within the continent, leading to a slowing economy. These factors are putting the transportation sector fuel use in a stagnant mode. Furthermore, the OECD Pacific, mainly Japan, will continue to show a further decline of 2.6%, as a result of not only normal efficiency trends, but mainly the effect of March’s natural disaster. Higher energy taxes, energy conservation, efficiency, alternative fuels, and other factors are also contributing to the decline in OECD oil demand. As a result, OECD oil demand is forecast to increase slightly by only 0.04 mb/d y-o-y in 2012 to average 46.3 mb/d.
China has issued a new policy, part of which was dedicated to support and encourage technology that aims to increase energy diversification, renewables, and energy storage. Of course, these laws are aimed at long-term goals. China’s government will interfere in the country's oil consumption next year. However, the effect is expected to be limited. China's 2012 oil demand will be a bit lower than this year as the country's GDP estimate is lower to start with. The upward risk does exist as the country's economy might show a better performance than anticipated. All economic sectors are expected to perform strongly, calling for more energy usage. The main sectors that will affect energy demand the most are transportation, industry, and agriculture.
China is expected to contribute the most to world oil demand growth in 2012. China’s successful measures to minimize the negative effects of the world economic crisis will also continue during 2012. It should be noted, however, that other sectors in China, which serve as major energy drivers, such as industrial production, in-land cargo, agriculture, construction, transportation and fishing, will show strong growth in 2012. An expected government push to curb energy usage, such as the increase in its retail fuel prices and taxes, ending the new vehicle registration incentive, more biofuel usage and the building of more electric powered interand intra-city railroads, will affect, to a certain degree, the consumption of transport fuel next year. As part of China’s long-term planning, the country is increasing the use of nuclear- and hydro-powered plants, which will negatively influence the consumption of coal and oil. China’s apparent oil demand is forecast to grow by 0.5 mb/d y-o-y in 2012, 80 tb/d less than the estimate for the current year.
India and the Middle East are estimated to show y-o-y oil demand growth of 0.1 mb/d and 0.2 mb/d, respectively for 2012. The transport, construction and petrochemical sectors will be the main drivers behind strong Middle East oil demand next year, as has been the case this year. Although the agricultural, industrial and transportation sectors are expected to be strong in India next year, the partial removal of price subsidies and other government policies are downside risks for oil demand growth in 2012.
Oil demand forecast assumptions 2012
The world oil demand forecast for the year 2012 is based on the following assumptions:
- World GDP will grow at a higher pace than last year.
- Oil prices will have an impact on transport fuel demand.
- Normal weather is assumed.
- The Chinese economy is forecast to grow at 8.5% in 2012, down slightly from last year, and further domestic price and tax hikes are expected.
- Most governments will place emphasis on energy conservation and will increase the use of alternative fuels.
- World stimulus plans, if any, will have little effect on oil demand in 2012.
- The Middle Eastern economy will show the same growth this year as last year.
- Apart from the slow economic recovery, various factors will slightly thin oil demand growth in Other Asia, such as price subsidy removal, fuel switching, and energy conservation programmes.
- There will be a stronger utilization of nuclear power plants.
- Japan’s disaster will affect the country’s next year recovery.
- Usage of biofuels will grow rapidly, adding another 0.2 mb/d.
- The world will see a strong movement toward the use of smaller and more economical vehicles.
- Most of the growth in oil usage will be in the transport, industrial and petrochemical sectors.
- Oil demand is expected to grow; however it will remain as a wild card in 2012 oil demand.
- The OECD economic recovery will have major rate of uncertainty.
Oil demand forecast scenarios
There is a great range of uncertainty affecting next year’s oil demand forecast. This is suggesting two more scenarios as an upper and lower range for oil demand growth: The UPPER range for world oil demand growth is forecast at 1.5 mb/d, which will reflect settlement in oil prices, strong oil demand growth in the US, improvements in OECD Europe economies and a serious recovery in Japan. It is suggested that a quick recovery of the US economy, along with a stronger dollar value, will lead to cheaper oil for US consumers. A healthy US economy will speed up other non-OECD economies as well, such as the Middle East, Other Asia and Latin America.
One important factor that might affect world oil demand is the price of natural gas. Should NG prices in 2012 move to the upper side, then fuel oil consumption would increase worldwide as a result of less fuelswitching, especially during a strong winter. A more PESSIMISTIC approach suggests lower oil demand growth of 1.1 mb/d, reflecting a delay and more turbulence in the economic recovery within OECD countries, which, in the end, would affect many other economies.
Higher gasoline prices would have a reflex effect on US motorists. The Japanese nuclear problem might cause further delays for the country’s rebuilding efforts and dampen not only Japanese oil demand but also that of the entire Pacific region. Strong retail petroleum products would suppress transport fuel consumption mostly in the OECD. Weaker gasoline consumption alone could trim at least 100 tb/d from expected oil demand growth next year. Efforts by China and India to remove price subsidies and place more taxes on fuel would put a dent in oil usage, mainly transport fuel. Should the winter be warm, then a further decline in winter products will be seen.