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World Oil Demand - Dec 05

Source: OPEC_RP051209 12/16/2005, Location: Europe

With preliminary data at hand for the first three quarters of 2005 and a healthier outlook for the world as well as regional economies for the reminder of 2005 and 2006, world oil demand is projected to rise by 1.2 mb/d or 1.5% to a yearly average of 83.3 mb/d. It is not surprising that oil demand growth is coming from countries with high rates of economic growth — Developing Countries — and oil producing states which have benefited from international oil prices. Incoming data from Developing Countries seems to corroborate earlier demand growth figures. According to latest information, first-quarter oil demand growth was around 0.9 mb/d with the second quarter rise hovering around 0.7 mb/d. Preliminary figures suggest another 0.6 mb/d gain in demand for the third quarter and, based on GDP data for the last quarter of this year, Developing Countries demand is projected to grow by 0.65 mb/d during the last three months of 2005. All this means that combined oil demand in Developing Countries will average around 0.7 mb/d which represents approximately three fifths of the total expected growth in oil demand for the current year.

OECD countries oil demand is projected to rise by 0.33 mb/d or 0.7% to average 49.8 mb/d. The promising growth seen in the first two quarters of 0.4 mb/d and 0.6 mb/d fell back in the third quarter when y-o-y growth was merely 0.1 mb/d. The low figure can be attributed partly to a contraction in third-quarter oil consumption in OECD Pacific countries but primarily to a disappointing 0.1 mb/d rise in North American demand with most of the growth coming from Mexico and Canada. As expected, the hurricane disruptions affected petroleum product consumption during September and October. Secondary and tertiary inventories, wholesale and consumers stocks, were probably drawn down to make up for disruptions to the US supply chain. Replenishing these stocks will likely show up in additional demand in the months to come. Thus, we project that demand will rise by 0.3 mb/d in North America for the last quarter of the year with the lion’s share coming from the USA. Western Europe’s oil demand is projected to finish the year with a slight decline following an increase in the second and third quarter of 2005. Healthy and surprising growth in the OECD Pacific for the first two quarters came to a halt during the third quarter when preliminary figures indicated a 0.7% y-o-y contraction. As for the year and based on a more positive economic outlook, the forecast indicates a growth of approximately 0.1 mb/d or 1.2% to average 8.6 mb/d. In China, following an unexpected contraction in apparent demand growth in the second quarter of 2005, preliminary trade and production data indicates a recovery in apparent demand in August of 0.06 mb/d followed by a 0.34 mb/d rise in September. Based on a positive economic outlook for 2005 — now revised up to 9.2% —the need to replenish drawn down product stocks, the suspension of export rebates on petroleum products (gasoline and naphtha), the need to comply with import quotas and the usual spur in buying ahead of the Chinese holidays, apparent oil demand in China is projected to grow by 0.34 mb/d or 5.1% during the fourth quarter resulting in a yearly rise of 0.13 mb/d or 2%.

Oil demand in OECD countries is projected to rise by 0.33 mb/d or 0.7% to a yearly average of 49.82 mb/d. North America will contribute three quarters of total growth; nevertheless it is important to highlight that the 1.2% y-o-y rise seen in the first two quarters of the year decelerated considerably in the third quarter to just 0.4%. Moreover, for the third quarter all the growth originated in Mexico and Canada, with the USA showing a marginal 0.2% contraction. According to the latest EIA monthly data, petroleum product supply for the period January-October 2005 fell by 0.3% compared with the first ten months of 2004. A breakdown into major product categories shows gasoline supply up by 0.2% in the first ten months of 2005, with distillates and fuel oil rising by 1.2% and 4.4% respectively. Thus, the contraction can be traced back to other product categories as well as jet fuel. It is important to note the weakening relation observed this year between GDP growth and oil demand in the USA. This year solid economic growth for the first three quarters of the year does not correlate to the actual contraction in demand seen in the first ten months. This divergent trend can in part be attributed to the sizable drop in demand during September and October as a result of the hurricanes; however, record pump prices, especially in the third quarter, may also have played a role.

According to the latest information, OECD oil demand rose by 0.3 mb/d or 0.6% for the first three quarters to a total of 49.39 mb/d. The breakdown of total OECD oil requirements by products for this period shows that inland deliveries of gasoil/diesel experienced the bulk of this growth, increasing by 0.26 mb/d or 2.1% followed by kerosene and naphtha, which rose 0.09 mb/d and 0.08 mb/d respectively. LPG consumption continued to decline, dropping by almost 0.13 mb/d or 2.7 % for the first nine months of this year due to high natural gas prices.

Developing countries oil demand is projected to rise by 0.7 mb/d or 3.2% to average 22.1 mb/d representing approximately three fifths of total world demand growth. The lion’s share of demand growth in this group will originate in non-OECD Asia and the Middle Eastern countries where consumption is projected to rise by 0.27 mb/d and 0.28 mb/d, respectively. In South-East Asia, reductions in subsidies have slashed consumption in several countries, e.g. Indonesia where gasoline and kerosene prices more than doubled recently. The extent to which the higher domestic product prices have impacted consumption is still uncertain. Indonesia’s oil demand contracted abruptly in October by as much as 40% after the government sharply raised domestic fuel prices during the month. However, local officials indicated that demand rebounded in November and early December, recovering much of the initial loss. According to the latest figures for the second week of November, product consumption stood at around 1.1 mb/d recovering from levels as low as 0.8 mb/d when prices were first increased. Pertamina officials expect product consumption to reach its normal level of 1.1-1.2 mb/d in the months to come. Demand in Thailand, where the removal of subsidies in July resulted in a rise of almost a third of domestic product prices, is up by more than 3.5% for the first ten months of the year. Malaysia also steadily phased out subsidies on domestic product prices; however, demand is estimated to rise by around 3% for the year. Oil demand in Latin America and Africa is projected to increase by around 0.08 mb/d each.

Other regions total oil demand growth is projected at 0.16 mb/d or 1.5% to average 11.4 mb/d for the year. Despite the disappointing expected growth in Chinese apparent demand for this year, it accounts for more than three fourths of the total growth in this group. China’s apparent demand derived from trade and production figures is projected to rise by 0.13 mb/d or 2% in sharp contrast to the astonishing near 1 mb/d registered last year. Following a modest start this year, Chinese demand rose by 4.6% during the first quarter but then registered a sudden 2.8% drop in the second quarter. Preliminary data and estimates for the third quarter indicate a minor 1.3% y-o-y rise for the third quarter. From the latest figures, apparent product demand in China for the first nine months of the year shows a 0.07 mb/d or 1.1% rise with respect to the same period last year. The good news is that, according to the August and September data, apparent demand seems to have started to recover. Although at 0.06 mb/d the rise during August was modest, in September the recovery appears to be robust with demand rising by 0.34 mb/d y-o-y. As mentioned earlier, apparent oil demand in China is projected to grow by 0.34 mb/d or 5.1% during the fourth quarter which results in a y-o-y rise of 0.13 mb/d or 2%. FSU’s apparent demand is projected to remain flat from last year following declines in the second and third quarters of the year. In contrast, the oil demand estimate for Other Europe (a group consisting of several central European states) has been revised slightly up as data from the first two quarters of the year indicates that demand rose more than previously estimated.

Forecast for 2006
Average world oil demand is now projected to grow by 1.6 mb/d or 1.9% to average 84.9 mb/d for 2006, slightly higher than the estimate presented in last month’s MOMR. The upward revision is due to a more optimistic view of the world economy for the coming year. The World’s GDP growth is now projected to rise by 4.2% next year with OECD and some developing economies in Asia and Latin America showing better than previously projected rates of economic expansion. Oil consumption is expected to rise in all major regions with the sole exception of Other Europe (Central European states) where demand will remain almost flat. North America, especially the USA, will contribute the bulk of demand growth within the OECD countries but some growth is expected in Western Europe and OECD Pacific. As has been the case in the last ten years, oil demand growth from developing economies of 0.7 mb/d is projected to contribute with a significant portion to total growth. China will make up more than one fifth of total world oil demand growth in 2006. Demand is projected to rise in each single quarter on a y-o-y basis. Thus, absolute demand of 83.57 mb/d in the second quarter of 2006 will drop by 1.9 mb/d with respect to the first three months of 2006 (85.42 mb/b). Total world oil demand will then recover by 0.6 mb/d to average 84.16 mb/d in the third quarter and further by 2.4 mb/d to average 86.5 mb/d the fourth quarter. This preliminary assessment is subject to further adjustments as new information becomes available on key factors such as the economic growth outlook, weather conditions, unforeseen social and geopolitical events, and variations in crude and product prices.

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