Various economic developments worldwide are almost offsetting each other, leaving the total oil consumption picture nearly unchanged from last month. Indicators are pointing towards a stabilizing world economy, although concerns remain for the Euro zone. Hence, the world oil demand forecast is unchanged from the last estimate, with growth for 2012 put at 0.9 mb/d y-o-y, to average 88.6 mb/d. There was low demand in some regions, especially in North America; however, this was offset by an increase in demand in other regions, such as OECD Pacific, China and India. Other regions, such as the Middle East and Latin America, continue to perform as expected in 2012.
The risk still exists, especially with the recent volatility in oil prices, that US oil demand has placed huge uncertainty on the existing demand assessment. The upcoming driving season might be affected by retail gasoline prices and economic development; hence, the country’s oil demand would show a further decline.
OECD — North America
US economic activity is still pushing oil demand growth into the negative. Most of the decline is related not only to the transport sector, but also to industry. The latest monthly US oil consumption data for January shows a 4.3% y-o-y contraction, the second-highest (after December 2011) observed since July 2009. The usage of some industrial and transportation fuels, especially distillates and gasoline, accounted for the bulk of this contraction. The first quarter was generally quite disappointing for consumption, showing contractions in all product categories, especially motor gasoline, distillates and residual fuel oil.
The main factors influencing consumption were ongoing economic concerns, relatively high fuel prices and a warmer-than-usual winter. In weekly terms, preliminary data for February and March indicates similar contractions in consumption, with March demand plunging by more than 1 mb/d. The outlook for consumption in 2012 remains rather pessimistic, and will depend on the development of the economy and the price levels of transportation fuel. US oil consumption is a factor that imposes a major risk to the total world oil demand forecast this year.
The latest available data for January indicates that Canadian oil demand remained flat, compared with last year. The positive contribution to oil consumption from transportation fuels was offset by a decline in industrial fuel usage, especially naphtha. The latest reported February Mexican oil consumption shows a slight decrease of around 0.7%, compared with the same month last year. Increases in the transportation product categories did not offset the huge decrease in residual fuel oil demand, as a result of fuel-switching to natural gas. For the whole of 2012, North American oil demand is forecast to contract by 0.1 mb/d y-o-y to average 23.4 mb/d.
US auto sales continued to accelerate sharply in March, despite high fuel prices, and this served as an indicator of an improving overall economic outlook. The month’s auto sales rose by approximately 13% from a year earlier. Higher demand for cars, as a result of an improving economy, unusually warm weather and the replacement of ageing vehicles, were the main reasons behind this large growth. The current high fuel prices have been supporting accelerated demand for smaller cars, as consumers turn towards more fuel-efficient vehicles.
The latest available Canadian data shows vehicle sales in that country grew at a high rate of 11.2% in February y-o-y. This marked the fifth consecutive monthly growth. The reason for this growth was an increasing number of consumers replacing their vehicles with revamped or fuel-efficient cars and trucks.
According to the Mexican Automobile Industry Association, that country’s auto production, sales and exports grew by a strong 24.9%, 11.5% and 24.9% respectively y-o-y in February. Exports to Brazil more than doubled in the first two months of 2012 y-o-y, while the gains reflected the robust state of the Mexican auto industry.
OECD — Europe
The Euro-zone debt crisis has been suppressing the region’s energy consumption. Following a massive 1.6% decline in European oil use last year, it is forecast that the trend will continue throughout this year. Nevertheless, the short- and medium-term development of European oil consumption will be determined mostly by the continuing debt problems of several European economies. Recent available data indicates that consumption contracted again in February, for the sixth month in a row. This was a consequence of the weak economy in the region.
February consumption in Germany, France, Italy and the United Kingdom fell, as a result of decreasing demand for industrial fuels, due to weak industrial activity, and shrinking transportation fuel demand. Another reason was the relatively high retail petroleum product prices, which were exacerbated by high taxation. European ‘Big Four’ oil demand decreased by 0.26 mb/d in February, compared with the same month last year. The Big Four’s oil consumption of industrial and transportation fuels accounted for the bulk of these decreases.OECD Europe’s oil demand is forecast to decline by 0.24 mb/d in 2012, to average 14.1 mb/d.
According to the latest figures from the European Automobile Manufacturer’s Association, European new passenger car registrations decreased in February for the fifth consecutive month, by 9.7% y-o-y — marking the biggest fall for more than a year. During the first two months of 2012, sales were down by 8.3%, compared with last year. All major markets decreased. France and Italy recorded double-digit downturns of 20.2% and 18.9% respectively, while Spain and the UK fell by a relatively mild 2.1% and 2.5%. The German market remained stable, with no change.
This year, the European auto market will almost certainly be dominated by economic concerns and austerity measures in several countries influencing future trends for smaller, more fuel-efficient cars. Expectations for 2012 show a decreasing market, as much as 6% y-o-y, depending on the magnitude of the sovereign debt crisis in the region.
OECD Pacific oil
Last year’s Japanese earthquake disaster has caused the country’s oil demand to increase this year. Not only have the rebuilding efforts been supporting higher oil consumption, but the shutdown of nuclear plants has also required the use of oil in several power plants. The latest February monthly data is dominated by huge increases in crude direct use and residual fuel oil, as a result of the shutdown of almost all the Japanese nuclear plants (51 out of 52). In addition, stricter stress-tests, as one of several conditions for their restarting, and the use of direct crude and residual fuel burning for electricity production are expected to increase further throughout the year.
Power plants are using crude — although only those crudes with a low sulphur content — fuel oil and liquefied natural gas (LNG) for electricity power-generation. Moreover, driven by increases in mileage and the number of vehicles, as a result of government incentives, transportation fuel consumption increased as well. Finally, kerosene and jet fuel consumption rose also for the first time in the last 12 months.
In South Korea, the use of oil in January decreased by 0.9% y-o-y; strong declines in residual fuel oil, jet fuel and gasoline were partly offset by increasing naphtha, liquefied petroleum gas (LPG) and gasoline requirements. The decline in oil use was attributed mostly to economic activity.
OECD Pacific oil consumption grew by 0.1 mb/d during 2011. Demand is expected to rise again in 2012, by 0.16 mb/d, while the bulk of the increase will result from direct crude/fuel oil burning for electricity-generation and substitution for nuclear plants in Japan. Driven by strong tax incentives and subsidies, Japanese auto sales continued to rise strongly in March, by a remarkable 78%. This trend has been seen for the past five months. Japanese auto demand is expected to rise sharply this year, partly due to higher sales in tsunami-hit areas, where thousands of cars were destroyed, and as a result of generous government efforts to stimulate demand. The incentives especially favour energy-efficient and high-tech vehicles. South Korean domestic car sales fell by 9.8% y-o-y, as a result of lower industrial demand. Nevertheless, the country’s auto exports rose by a strong 17% during February.
Indian oil demand growth for February hit a strong 7.4% y-o-y. This was the largest rate of growth since November. Diesel oil demand grew the most, adding another 0.17 mb/d to the total diesel consumption pool. Diesel is the most consumed petroleum product in India, with consumption estimated at 1.6 mb/d. It is consumed not only by the industrial and transportation sectors, but also by the agricultural sector. Diesel usage accounts for 42% of total oil demand in India. Gasoline is also an important product consumed in India, totaling 0.38 mb/d. Naphtha demand grew robustly in February, resulting from increasing operations in the petrochemical industry.
Since mid-2010, India has deregulated retail prices for some petroleum products; however, companies cannot increase retail prices without government permission. Recently, the government has been hesitant to allow oil companies to pass on the hike in international oil prices to end-users. This move has been objected to by oil companies and is, to a certain degree, affecting oil demand positively. For 2012, India’s oil demand is expected to grow by 0.12 mb/d.
According to the Society of Indian Automobile Manufacturers, domestic passenger car sales increased by 13.1% in February y-o-y. This was the fourth consecutive month of growth and the highest rate for ten months. Discounts, lower interest rates, increased customer liquidity and generally improved sentiment were some of the factors behind these strong increases, which occurred despite high fuel prices.
Indonesia is the second-largest oil-consumer in ‘Other Asia’ after India and its consumption is growing. The country’s January oil demand grew by 3.4% y-o-y, averaging 1.2 mb/d. Diesel consumption was the largest contributor, averaging 0.45 mb/d in January. As for the year, Indonesian oil demand is forecast to inch up by 1.6% y-o-y. Given the healthy economies in most of Other Asia, this region’s oil demand growth is estimated at 0.2 mb/d y-o-y.
Winter-time is low season for electricity demand in Saudi Arabia; hence, oil demand was down dramatically. Both fuel and crude oil consumption by power plants declined by 170 thousand barrels a day (tb/d) in February y-o-y. This decreased total oil-usage by 5.8% in the same month. Iran, the second-largest oil-consuming country in the Middle East after Saudi Arabia, maintained the same level of oil consumption in February. Following many months of decline, gasoline demand grew strongly in February, adding another 0.07 mb/d to total oil demand. Iranian oil demand averaged 1.5 mb/d during that month. Middle East oil demand is forecast to grow by 2.4%, averaging 7.6 mb/d in 2012.
Strong gasoline consumption hiked Brazilian oil demand by 6% in January y-o-y. Gasoline demand grew by 23%, adding another 116 tb/d to the country’s total oil demand pool. This increase in the country’s oil demand came about despite the massive slide in petroleum alcohol usage for fuel. Developing countries’ oil demand growth is forecast at 0.6 mb/d y-o-y to average 28.2 mb/d in 2012.
China has been floating domestic oil product prices to some degree, using a certain formula, and this mechanism has exposed end-users to international oil prices. However, this does not apply to all products and the government tends to delay increases to avoid high inflation. China has been importing a significant amount of oil in the past two months. This has mostly ended up in storage. The country’s monthly oil imports rose by 18.6% in February y-o-y. In February alone, China stored 0.8 mb/d of crude and products. This stockpiling has been seen since November. On average, China stored 0.56 mb/d, or 68 mb, of oil over the past four months. Almost 57% of the stored oil is diesel. Based on our methodology, stored oil is not counted as part of the country’s consumption. Hence, China’s oil demand growth for February is forecast at 0.67 mb/d y-o-y, averaging 9.7 mb/d.
The country’s oil demand for the year is forecast to grow by 0.4 mb/d, or 4.2%. This trend is similar to what has been seen over the past few years.Data from the China Association of Automobile Manufacturers shows that the country’s automobile sales rebounded by a strong 26.5% in February, following a huge decline in January, which has been affected by the week-long Lunar New Year holiday. In the first two months of 2012, Chinese auto sales fell by 4.4% as a result of not only the holiday, but also the slowing economy, increasing fuel prices and government moves towards curbing GDP growth.