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World Oil Demand - NOV 11

Source: OPEC_RP111106 11/9/2011, Location: Europe

World oil demand in 2011
The fourth quarter is by nature a high season for oil consumption as the world demands more heating and fuel oil. However, despite the winter demand for oil products, OECD oil demand is expected to remain negative as a result of the slowing economic momentum. Growing economic uncertainties in the EU have dampened the continent’s oil usage. US gasoline demand has been on the decline for the past four months reflecting economic woes and the latest cold front in the US is not expected to alter the country’s oil consumption forecast. Weakening Chinese oil demand is being offset by strengthening oil use in other non-OECD economies. As a result of these offsetting factors, world oil demand is forecast at 0.9 mb/d y o-y to average 87.8 mb/d, unchanged from the previous report. Stiff retail petroleum product prices have affected oil demand in Non-OECD regions such as China and India. Both countries’ oil demand growth is estimated to be less than last year’s.

Alternative fuel
A study that was submitted to the EU claiming that the use of biodiesel is not “green” as previously assumed has been criticized by the board of the EU biodiesel industry. Biofuel has been increasingly under attack recently by many research entities which suggest that its alleged advantages rest upon false assumptions. Furthermore, several studies are accusing biofuel production as a principal cause of higher food prices.

OECD – North America
Latest monthly US oil consumption data for August show a larger y-o-y contraction than previously reported of approximately 1.3%. The usage of transportation fuels, especially gasoline, accounted for the bulk of this contraction and was attributed to higher fuel prices, increased vehicle fleet efficiencies, as well as declining driving mileage and gloomy general expectations about the economy. However, the growth in distillate consumption was solid, as a result of mildly increased industrial production. In line with the traditional travelling season, the consumption of jet/kerosene increased substantially while the demand for residual fuel oil continued to contract for the fourth month in a row.

Propane/propylene consumption was stagnating as compared to last year. Furthermore, the first nine months of 2011 implied decreasing y-o-y consumption for all product categories except distillate fuel oil. Motor gasoline and residual fuel oil showed the strongest contractions in the first nine months of the year. Given the fact that the driving season is behind us, gasoline demand is not expected to show any healthy move for the remainder of this year and the first quarter of 2012. The signs for US oil consumption during 2011 are, up to now, quite pessimistic; nevertheless cold weather in the US during the fourth quarter could boost the consumption of heating oil.

Mexican oil consumption in September was up by 3.1%, as compared to last year with all product categories showing increases. The most observed increase was in industrial fuels. Canadian oil demand contracted slightly by 0.5% in August. Negative contribution to oil consumption by transportation fuels was almost offset by oil usage in industry. North American oil demand is expected to shrink by 0.11 mb/d in 2011 y-o-y. In 2012, North America is projected to grow slightly again by only 0.11 mb/d. US vehicle sales rose by 10% in September y-o-y, the largest growth since April 2011.

Nearly 54% of vehicles sold were trucks and SUVs, the highest percentage this year. Factors that boosted car sales are the needs of small businesses to replace aging fleets of work trucks in combination with auto companies offering some attractive deals to clear out 2011 model truck inventory. The average age of US trucks currently stands at 10.1 years. Moreover, shortages in Japanese vehicles, as a result of March’s earthquake and tsunami, enhanced American-made truck and SUV sales. The latest available Canadian data indicated that a shortage in Japanese-made vehicles reduced domestic sales by 0.4% in September 2011 y-o-y. According to the Mexican Automobile Industry Association, Mexico’s auto sales, production and exports grew robustly in September 2011, by 12.2% and 14.1% and 14.2%, respectively.

OECD – Europe
European oil consumption contracted again in September after being on the positive side in August. During the first nine months in 2011 European oil consumption shrank by 0.15 mb/d, reflecting the weakened economy in that region. September oil consumption in Germany, France and Italy fell, while UK consumption grew for the second month in a row. Decreasing demand in transportation fuels, as a result of high prices and, thus, decreasing driving mileage were the main reasons behind the decline in the European September oil consumption. The short- and medium-term development of European oil consumption will be mostly determined by the continuing debt problems in several European economies. Oil demand in the European Big Four decreased by 0.05 mb/d in September as compared to September 2010 and their consumption of transportation fuels continued to be in the minus during the same month, while some industry fuels showed increases.

The region’s total contraction in oil demand stands at 0.14 mb/d in 2011. For 2012 oil consumption is expected to shrink again, as a result of the rather pessimistic economic development, by a slightly lower magnitude of 0.08 mb/d. According to the latest figures from the European Automobile Manufacturers Association (ACEA), new passenger car registrations in Europe increased slightly by 0.6% in September y-o-y. Germany was the only major market to register a strong growth of 8.1% while other major markets declined. The worst sales decline was registered in Italy, which reached -5.7%. From January to September, the market picture was diverse across the region, leading to an overall 1.1% decline y-o-y. Looking at the main markets, the UK, Italy and Spain contracted by -5.0%, 11.3% and -20.7%, respectively, while France remained stable at 0.2%, and Germany registered strong growth of 10.8%.

OECD – Pacific
In Japan, latest September monthly data reversed the optimistic picture seen in July and August showing a strong decline in the consumption of all products, especially gasoline, jet fuel and naphtha. Moreover, the direct use of crude, one of the main factors behind growing oil demand in the summer months, remained flat as compared to last year. The strong decline came in combination with a high baseline during the same month in 2010. In South Korea, August oil demand grew just as it did in July; declines in transportation and some industrial fuels were more than offset by increasing naphtha demand.

OECD Pacific oil consumption is expected to remain broadly flat in 2011 and 2012, with marginal declines of 0.02 mb/d and 0.04 mb/d, respectively. However, projections are heavily dependent upon the speed of recovery in Japan. Crude oil burning in power plants in lieu of damaged nuclear plants increased Japan’s crude demand by 70% in the first eight months of the year; however, in September there was no growth in crude oil usage as the summer heat faded out.

Japanese auto sales rose 1.7% in September y-o-y for the first time since the March earthquake and tsunami, as car makers improved their supply of vehicles to dealerships. The figures, however, reflect a low basis of comparison of the year-earlier. In September of last year, auto sales fell down after the government cut its subsidies for fuel-efficient cars. As for October, vehicle sales in Japan grew 28.3% as a result of governmental subsidies to replace cars that are older than 13 years. The outlook for the country’s auto industry remains bleak, as the yen stays very strong against the dollar, and the world economy is unstable.

Developing countries
Following three months of slowdown in Indian oil demand, the country’s September oil demand rebounded back to achieve a growth of 0.2 mb/d or 6.1% y-o-y. This is the highest growth this year. India has been consuming NG in its power plants in lieu of oil. Furthermore, low consumption of diesel in the past four months was considered another reason for slow Indian consumption at that time. Bad weather reduced farming operations, leading to less diesel usage. September diesel demand grew by 6.3% adding another 108 tb/d to the total diesel demand pool. One third of the oil used in India is diesel which is consumed by transportation, industrial and agricultural sectors. Indian oil demand growth is forecast to be around 4% this year.

According to the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales decreased by 1.8% during September y-o-y, mainly due to high interest rates and increased petrol prices. Going against the trend of low demand in the car segment, motorcycle sales in India grew by 19.9% in September, y-o-y. Auto companies plan to introduce measures for enhancing car sales, such as free fuel, affordable insurance, cash discount, and lower prices.

Economic activities hiked Thailand’s oil demand in August by 14% or 115 tb/d y-o-y. Industrial products were the most consumed pushing the country’s total oil demand to average 0.92 mb/d in August. However, the recent flood has been affecting industrial operations and, hence, industrial fuel demand has been heavily affected in October and November. Thailand’s total oil demand growth for the year is forecast at 80 tb/d y-o-y. Given the strength of oil demand in both India and Thailand, Other Asia oil demand growth is forecast at 0.23 mb/d in 2011, averaging 10.4 mb/d.

Saudi transport fuel consumption hiked up, adding another 155 tb/d to the total oil demand pool. This strong consumption came about after a moderate demand level in the past two months. In the past three quarters, gasoline and diesel usage grew by 5% each. Despite the decline in Iranian oil demand, the strength in Saudi and other GCC oil demand is expected to balance it and end up with 2.6% annual growth. The Middle East oil demand growth is forecast at 0.2 mb/d. Taiwan Thailand Singapore Brazilian oil demand increased by 84 tb/d in August following a negative performance in July caused mainly by lower use of alcohol.

The product that grew the most was gasoline reflecting the high travelling summer season. Gasoline demand grew by 23.8% in August y-o-y, driving the country’s total demand up by 50 tb/d in the first nine months of the year. The largest growth in oil demand this year in Latin America is forecast in Brazil and then Argentina and Ecuador. Latin America’s oil demand growth is forecast at 0.17 mb/d y-o-y, averaging 6.4 mb/d in 2011. Developing Countries oil demand growth is forecast at 0.62 mb/d y-o-y, averaging 27.6 mb/d.

Other regions
China reduced pump prices for both gasoline and diesel by around 4% early in October; however, this move is not expected to increase consumption drastically. The last time China reduced prices was in June of 2010. China’s oil demand has slowed down since June with a y-o-y growth of less than 1%. Of course, one major factor that negatively affected China’s oil demand this summer is the governmental policies toward new vehicle registrations. Other factors that negatively influenced China’s oil demand are higher retail petroleum prices, which slightly suppressed oil demand (mainly transport fuel), and the mandatory blend of biofuel which reduced gasoline consumption slightly.

Despite this third quarter slowdown in oil use, it is expected that the fourth quarter oil use will be semi-strong as forecast. As for the first three quarters of the year, China’s oil demand averaged 9.6 mb/d. China’s third quarter oil demand growth was 140 tb/d; however, the fourth quarter growth is forecast at 430 tb/d. Such weak growth has not been seen since the first quarter of 2009. If the government tried to reduce the use of energy at the end of this year, then this would increase the demand for diesel as the use of independent generators would increase. China’s oil demand growth is forecast at 0.44 mb/d or 4.9% y-o-y for 2011.

Data from China Association of Automobile Manufacturers (CAAM) show that the country’s automobile sales increased to 5.5% during September as compared to a year earlier. The sales of passenger vehicles in September increased 8.8% from a year earlier, up 4 percentage points from a month earlier. The sales of heavy trucks in September shrank by 12.4%, while the sales of buses in September grew 7% y-o-y. The increase in vehicle sales is attributed to the government's subsidies for energysaving vehicles. The subsidy policy, introduced in June of last year, provides subsidies for vehicles within a certain weight range that have a maximum fuel consumption of 6.9 liters per 100 km. Moreover, buyers may receive a 3,000-yuan ($470.2) subsidy for every car they purchase that falls within the specifications Russia’s booming economy is calling for more use of oil. The country’s oil demand has been in a growth mode since 2009. Industrial and transport fuel growth are the reasons for this. In total, the FSU region oil demand is forecast to grow by 0.1 mb/d y-o-y in 2011 averaging 4.2 mb/d.

World oil demand in 2012
The world economic outlook has been worsening due to the challenges facing the OECD economies. The forecast for world GDP next year has been revised further down reflecting these uncertainties. Next year’s oil demand growth is expected to come from the non-OECD, mainly China, India, the Middle East and Latin America. By sector, industrial – particularly, petrochemical – and transport sectors will contribute the most to expected oil demand growth. US oil demand is expected to return to its normal growth mode; however, it will remain the wild card for 2012. Furthermore, petroleum product retail prices will play a major role in oil demand next year, mainly in the transport sector.

The EU oil demand will continue to contract next year resulting not only from weak economic growth but also from maintaining its efficiency trend. OECD Pacific oil demand will be in better shape than Europe’s as Japan’s oil consumption will reflect rebuilding projects. World oil demand is forecast to grow by 1.2 mb/d in 2012 to average 89.0 mb/d.

Chinese oil demand is expected to grow the most world-wide despite government efforts to curb energy use within the country. Chinese oil demand is expected to inch up by 5.1% y-o-y. Along with China, the Middle East, India, Brazil, and the rest of the non- OECD countries will boost world oil demand by 1.2 mb/d or 1.4 % in 2012. Russia Kazakhstan Ukraine Lithuania All others FSU. Indonesia is planning to further remove its subsidies from certain petroleum products Which in return will suppress demand next year. This move is seen mainly in Asia as international oil prices stayed in the upper band.

As mentioned before, next year’s oil demand forecast is based on assumptions such as higher GDP, higher retail petroleum product prices, strong Chinese economy. However due to uncertainty in the total world economy in 2012, next year’s oil demand forecast implies two scenarios; however, the probability leans more towards the downside. A worse than expected outcome of the US economy along with higher oil prices might reduce world oil demand growth by 0.2 mb/d.

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