World Oil Demand - Dec 12

Source: OPEC_RP121206 12/12/2012, Location: Europe

World oil demand in 2012
Rebuilding efforts in the aftermath of Hurricane Sandy in the USA have contributed to the country’s oil demand growth in early December. Not only has US oil consumption grown, albeit slightly, but Indian oil demand has also risen drastically, pushing total world oil use to 90.3 mb/d in December. Cold winter weather would affect mainly middle distillate consumption. Normal year-end winter intensity remains at the level of natural gas use and slightly affecting heating oil demand. This is expected to go hand-in-hand with the world’s winter oil demand seasonality. The challenge in OECD economies has had a negative effect on world oil demand. Furthermore, the future economic prospects in both OECD Europe and OECD Pacific remain uncertain. Although there is good news regarding industrial activity in Germany, other areas are producing negative economic signals. While China’s economy has shown signs of stagnation in the past few months, the December data suggests a better performance. Furthermore, the transportation sector is expected to see an inching-up of fuel consumption during the holidays. World oil demand growth in 2012 is estimated at 0.8 mb/d, to average 88.8 mb/d. There are no major differences to the last Monthly Oil Market Report (MOMR).

As a result of the summer power shutdown and seasonal agricultural activity, Indian diesel demand has soared since August; however, diesel usage has been slowing slightly in December. The use of crude and fuel oil by Japanese power plants is also slowing.

Year in Review 2012
The world financial crisis had a negative impact on the world economy, especially the OECD, since 2009. Nevertheless, the oil demand forecast for 2012 was not as ambiguous as the one for 2010, but a bit more complicated than that of 2011. Low growth in the US economy, along with a deceleration in other OECD economies, has pushed down world GDP growth to 3.0% for this year, versus 3.6% in 2011. Hence world oil demand has suffered the negative consequences of weakening economies to achieve growth of only 0.8 mb/d for 2012. Unlike last year, the downward revision to oil demand growth was not confined to mainly the OECD, but occurred in China as well. Japan shut down almost all its nuclear power plants, forcing the country to use other types of energy. Japanese oil use in power plants increased from 7.5% of total energy use to 19.7%. This denotes growth of 0.3 mb/d for the country in 2012 and made up 40% of annual world oil demand growth. Almost all the petroleum product demand growth in Japan was in the form of fuel and crude oil. Some upward revisions occurred in the non-OECD areas of strongest growth, namely India and the Middle East.

Indian oil demand was heavily affected by the massive electricity shutdown and the summertime agricultural season. The use of independent power-generators led to massive diesel usage country-wide. The fall in the grid left 600 million people without electricity. Excessive uploads to the electricity line crippled the total system a number of times, leading to the use of independent diesel-operated powergeneration. As a result, diesel usage increased by a massive 0.2 mb/d in the third quarter. Industrial, including petrochemical, and transport fuels showed the largest increases during the year as a result of energy-intensive projects in the non-OECD region. The petrochemical industry, especially in Asia (China), featured substantial increases during the year.

World oil demand growth in 2012 is estimated at 0.8 mb/d, to average 88.8 mb/d.

Product-wise, transportation fuel consumption was the dominant feature, with consumption exceeding 50% of the total oil used. Diesel demand (transport and industrial) grew by 0.4 mb/d in 2012, to average 27 mb/d worldwide. This was greatly affected by the massive Indian consumption by independent electricity-generators. Gasoline demand, on the other hand, halted its decline and achieved growth of 0.4% during the year, averaging 22 mb/d. The main reason for gasoline’s strong performance was the increase in US demand late in the year. Increased taxes on, and retail prices of, transportation fuel in some OECD countries and the removal of price subsidies in some non-OECD countries suppressed the use of such products. Japan’s natural disaster last year hiked the country’s fuel oil demand by 0.15 mb/d y-o-y; this came about as nuclear power plants were totally shut down.

China’s oil demand grew as forecast in all quarters except the third, rising by 3.2% y-o-y to average 9.7 mb/d. Several factors interfered with China’s demand, such as slower industrial manufacturing, lower exports, increased petroleum product prices and the Government’s obstacles to new car registrations in major cities.

Two factors played a major role in US oil demand in 2012, leading to a contraction of 0.25 mb/d in North America. Retail oil prices and the developments in the US economy were major variables in the region’s demand during the year.

US demand has been the ‘wild card’ in global oil consumption over the past few years. Following rather devastating first and third quarters, US consumption settled down in the final quarter. Product-wise, consumption of distillates declined by almost 4% y-o-y, as a result of slowing industrial manufacturing. In addition, gasoline usage has been in a much better situation this year than last year. Last year’s gasoline demand declined by 2.7%; however, demand this year is almost flat. Overall, US oil demand has declined by around 1.6% in 2012.

The ‘Big Four’ European countries (Germany, France, Italy and the United Kingdom) have continued their weak oil consumption patterns during the last eight years. This has caused OECD Europe’s demand to lose 20% of its value since 1998. As seen last year, the Euro-zone debt problem has been battering the OECD Europe economy and forcing its total oil demand to lose half a million barrels in 2012. In all the OECD European countries, the sectors that were hit the most were transport and industry, resulting in lower consumption for distillates and gasoline. This move was seen in the past few years too. Despite Germany’s strong economy, this country’s oil demand fell by 0.07 mb/d y-o-y. Germany is the largest oilconsuming country in Europe and its energy policies have a major effect on the region’s oil demand. Its announcement of a total abandonment of nuclear usage will alter its future energy map after 2020.

Japan’s natural disaster last year affected all aspects of the country. Despite the decline in manufacturing activity, the extra use of crude and fuel oil by power plants rose by 0.3 mb/d. Furthermore, the rebuilding efforts contributed to the total increase in energy demand this year.

Auto industry
After reaching a 30-year low in 2009, US vehicle sales have grown for the second year in a row in 2011. This sales growth was estimated at approximately 7%, as a result of easier credit, low interest rates and increased demand for cars and trucks. Auto sales continued to rise strongly during the first three quarters of 2012 at a rate of 13% and they are expected to become even stronger for the whole of the year. The main trends are very similar to those in Europe. Smaller and more fuel-efficient vehicles were on the rise as gasoline prices increased. In addition, sales of pickups and minivans rebounded as businesses replaced older vehicles. Also sales of mid-sized SUV vehicles increased by a strong 10%. It is projected that 2012 will see a big increase of around 13–14%, making this the strongest year since 2007. The Canadian auto market is estimated to have grown by 7% in 2012. The very close relationship between the Mexican automobile industry and the US auto market boosted auto production and exports during the first nine months of this year by 13% and 11%, compared with the same period of 2011. Domestic auto sales grew by 11% to 701,901 units, although they still remained below the level set in 2007, prior to the recession. The Mexican auto market is expected to continue growing at the same rate during the remainder of 2012.

The European market during the whole of 2012 was heavily influenced by the ongoing financial crisis in several countries, with substantial decreases across countries in new passenger car registrations. According to figures from the European Automobile Manufacturer’s Association, European new passenger car registrations decreased by a strong 7% during January–October, with nearly all major markets recording negative figures. The UK was the only market to expand, by 5%, while Germany and France decreased by 2% and 13% respectively. Moreover, the southern European markets saw huge decreases: 12% in Spain, 21% in Italy and a remarkable 38% in Portugal and 40% in Greece. The general trends in the region continued to evolve during 2012, for smaller, more fuel-efficient cars with lower emissions, while most new cars had diesel engines. On average, Europeans change their car every eight years. During the remainder of 2012 and 2013, the European auto market will most certainly be dominated by economic concern and austerity measures further influencing current trends. Hence 2012 is projected to show a decrease of 8%. The Japanese auto market for 2012 is nevertheless projected to grow at around 30% y-o-y, as a result of the very strong sales in the first half of the year. The South Korean auto market is projected to shrink by 2% in 2012.

In the third quarter, China’s oil demand experienced its second-weakest growth since the first quarter of 2009. Most of the easiness in the country’s oil demand is a result of the slowing economy in the third quarter of this year. Furthermore, a cap that was introduced by the authorities on new car registrations in major cities played a significant role in the country’s gasoline consumption this year. Other factors led to this weak performance, such as high retail prices and the Government’s five-year energy-saving programme which was introduced during the year. As economic activity rebounded in the fourth quarter, China’s oil usage inched up by 0.4 mb/d and is expected to end the year with 3.2% growth.

Indian diesel consumption boomed substantially in the third quarter as a result of the total electricity shutdown. Consequence, the use of independent electricity-generators led to a huge use of diesel in the summer. The transportation (increases in new car registrations) and industrial sectors displayed solid growth during the year, including the petrochemical and power plant industries. As a result of India’s oil demand, Other Asia’s oil demand grew by 0.3 mb/d for the year.

Energy-intensive projects in the Middle East, especially Saudi Arabia, raised the region’s oil demand by 3.3% in 2012; this was 0.1 mb/d higher than growth in 2011. The region’s oil demand has been growing at a steady rhythm in the past few years. The product consumed the most was diesel, which was used by both the transport and industrial sectors.

The OECD Pacific’s and the non-OECD region’s oil demand accounted for all the oil demand growth in 2012, totalling 1.4 mb/d y-o-y. Unlike last year, this year’s strongest growth was seen in Other Asia, followed by China, the Middle East and Latin America.

Auto industry
According to the statistics and analysis of the China Association of Automobile Manufacturers, Chinese automobile sales increased by almost 4% in 2012. Passenger car sales rose by 7% and commercial vehicle sales declined by 8% from 2011.

According to the data released by the Society of Indian Automobile Manufacturers, car sales in India are expected to have grown at an overall rate of 4% in 2012, as a result of the low level of sentiment towards the overall economic situation of the country, relatively high fuel prices and interest rates.

OECD — North America
Increased manufacturing activity in the last two months of the year has not only stopped oil demand from decreasing in the USA, but has also seen a push towards growth in November. However, 2012 has looked generally quite disappointing for US consumption, with contractions in all product categories and the worst seen in distillates and residual fuel oil. The latest monthly US oil consumption data for September saw a continuation of the recent downward trend, showing decreases of 3.7% y-o-y. All main product categories experienced declines, including gasoline at 2%. The main factors influencing US consumption were weak industrial production, the struggling economy, high retail fuel prices, especially in the first half of the year, and fuel-switching, particularly towards natural gas. Preliminary weekly data shows an increase in US gasoline consumption in November — for the first time since August. The outlook for US oil consumption for 2013 remains rather pessimistic, especially when taking into consideration the development of the economy and fuel-switching.

The latest reported figures for Mexican oil consumption in October showed a sharp increase of around 15% over the same month last year. Improvements in industrial activity and the economy were the main factors behind this rise. Regarding Canadian oil demand, the latest available data for September shows oil demand decreasing once more by 1% y-o-y; oil usage in transportation and industrial products dominated this decrease. Despite this decrease, the country’s annual oil demand is expected to be flat this year.

Overall, North America’s oil demand is projected to decrease by 0.25 mb/d in 2012.

The latest information for November shows US auto sales up by 12% y-o-y, as a result of low interest rates, the replacement of aging vehicles and the fact that the general sentiment about the economy seems to be improving.

Automakers in Canada had their best October ever, pushing industry sales up nearly 8% from a year ago and putting sales on track for what could be a record year. Gasoline prices have been a key concern for cost-conscious buyers and that has helped push growth in the smaller, more fuel-efficient car category higher than in the truck segment.

The latest Mexican data from the Mexican Automobile Industry Association shows September production and domestic sales rising by 13% and 8%, while exports remained flat.

OECD — Europe
European oil consumption contracted again in October, for the 14th month in a row. This reflected the region’s tumbling economy. Consumption in Germany, France, Italy and the UK fell, however at a lower rate than in September. The bulk of the decreases was seen in transportation and some industrial fuels as a result of the weak regional economy. The European ‘Big Four’s’ demand decreased by 0.10 mb/d in October y-o-y. Undoubtedly, the short- and medium-term development of European consumption does not appear to be positive, as continuing debt problems in several European economies do not seem to have settled down.

For 2012, European oil consumption is expected to shrink by 0.5 mb/d, as a result of the severe economic turbulence in the continent.

European new car registrations in October continued their downward trend, declining for the 13th consecutive month. Demand for new cars slid by 5% from October 2011. Looking at the major markets, the UK was the only one to expand (12%), while Germany remained stagnant and France (–8%), Italy (–12%) and Spain (–22%) all faced huge downturns.

OECD - Pacific
For Japan, the latest monthly data for October shows increasing consumption of crude and residual fuel oil direct use. However, these increases were considerably lower than in previous months. This was because of the high baseline and the end of the summer period. The consumption of other product categories differed: gasoline, jet fuel, liquefied petroleum gas (LPG) and distillates were on the rise, while naphtha and kerosene fell slightly and sharply respectively. Our earlier prognosis that the direct crude and residual fuel burning for electricity production would continue at least throughout 2012 seems to have been verified. For South Korea, September came up strongly, with increases of 2.1% y-o-y. Rises in industrial products, notably naphtha, more than offset declining consumption of other products.

OECD Pacific oil consumption is expected to grow by 0.37 mb/d in 2012, with the bulk of the increase resulting from direct crude/fuel oil burning for electricity-generation and substituting nuclear plants.

Japanese auto demand had two faces during the first ten months of 2012. Very strong growth of 55% was observed during January-to July. This was driven by strong tax incentives and subsidies, as well as a low baseline from the catastrophic earthquake and tsunami. Thereafter, as the low baseline effect and Government incentives disappeared, sales switched to the negative, showing the largest decline so far this year of 10% in October.

The latest October data shows South Korea's automobile sales increasing by a solid 9%, as production recovered from labour strikes in the country’s top two automakers, Hyundai and Kia.

Developing countries
The effect of India’s total massive power shutdown was seen in the country’s diesel demand for three months in the row. However, the end of the summer season, along with the stabilization of electricity supply, led to a slowdown in diesel demand. Hence October diesel demand growth has been estimated at 83 tb/d y-o-y, as opposed to the 200 tb/d level seen in the previous three months. The end of the summer season pushed down October oil demand growth for the entire country to 0.2 mb/d y-o-y. Furthermore, gasoline demand growth has been estimated at 5.6% for the same month. October oil demand is still on the high side, compared with the first half of the year. Indian oil demand growth is estimated at 0.2 mb/d for 2012. The early forecast was set at 3.4% demand growth for the year; however, the latest revision has put this at 4.4% for 2012.

According to the data released by the Society of Indian Automobile Manufacturers, car sales in India registered a sharp increase of 23% in October y-o-y, as a result of greater demand during the traditional festival season and the launch of new models. This monthly growth was the highest since January 2011.

Thailand’s oil demand has performed well since February. Growth in energy use is attributed solely to economic activity related to the industrial sector. September and October oil demand each grew by an average of 5%. Most of the growth was attributed to the industrial and transport sectors.

Indonesian oil demand grew by 6% in September, pushing third-quarter growth to 0.1 mb/d y-o-y. The country’s gasoline consumption was one of the highest in the region. This grew by 8.1% in September alone and this trend is expected to last until the year-end. The rise is attributed to a growing economy and minor subsidies for some oil product consumption. Indonesia will have consumed 1.4 mb/d by the end of 2012. Given the strong oil demand by India, Other Asia’s oil demand growth is estimated at 0.3 mb/d y-o-y in 2012.

Saudi oil demand bounced back to its usual double-digit growth in October, at 13.7% y-o-y. The ‘summer effect’ is seen in the country’s oil demand in October, when powerplants use up an abundant amount of fuel and crude oil. Direct crude use increased by 47% in October alone, averaging 0.6 mb/d. Nevertheless, this is expected to ease dramatically this month.

Oil consumption in the Middle East has been growing strongly, reaching around 2.9% annually. Most of this growth is attributed to the transport and industrial sectors. It is estimated that the Middle East will have consumed 7.8 mb/d at the end of 2012, denoting growth of 0.25 mb/d y-o-y.

Brazil’s oil demand growth in September was almost flat, making it the lowest growth rate since September last year. However, this was affected by the energy seasonality in Brazil. The increase in gasoline consumption was offset by a decline in both diesel and LPG. Bad weather forced the Government in the middle of the year to reduce the alcohol/ethanol-based blending mandate from 25% to 19% and this caused the negative year-on-year demand.

Venezuelan oil demand grew by 13.8% in September, in line with the August trend. This strong growth resulted from high demand for jet kerosene, which reached 28 tb/d. Jet kerosene is the second most-consumed petroleum product in Venezuela after gasoline. The country’s oil demand rose sharply in the first three quarters of the year and is expected to end the year with growth of 0.05 mb/d y-o-y averaging 0.8 mb/d.

Developing countries’ oil demand is forecast to have grown by 0.7 mb/d in 2012, to average 28.5 mb/d, denoting an upward revision of 0.06 mb/d from the last MOMR.

Other regions
China’s gasoline demand increased by a dramatic 8.8% in October y-o-y, adding another 162 tb/d to the total gasoline pool. Its gasoline demand has been on the growth path for many years, averaging 2.0 mb/d in October. This trend is expected to continue next year, pending no new Government policies directed towards transport fuel consumption. Kerosene and diesel use grew strongly in October, each by 0.1 mb/d. Diesel is the largest petroleum product consumed in China. China’s Manufacturing PMI was estimated at 50.4 in November, the highest for more than 12 months. This indicated higher diesel demand during that month. Apart from November, diesel use was low for most of the year, as a result of slowing industrial activity. Another factor that affected diesel demand was the construction of infrastructure, where the use of machinery raised diesel demand. Winter intensity will play a major role in the use of transport fuel, as driving mileage tends to ease off when it is very cold.

According to the statistics and analysis of the China Association of Automobile Manufacturers, Chinese automobile sales increased by 5% in October, following a decrease of almost 2% in September y-o-y. Among the main automobile categories, passenger car sales rose by 6% and commercial vehicles by 1% y-o-y.

World oil demand in 2013
A high level of anticipated risk in the world economy next year is placing a large amount of uncertainty on the world oil demand assessment. This uncertainty is not confined to OECD economies, but is also expected in non-OECD countries, such as China and India. Hence, the forecast oil demand growth has a downside risk, especially in the first half of the year. Some factors that are affecting next year’s oil demand forecast are the current vagueness in the world GDP assessment, retail petroleum prices and abnormal weather, and this could all lead to a revision of the world oil demand assessment later in the year.

The outlook for US oil consumption for 2013 remains somewhat pessimistic. This also applies to European oil consumption. Furthermore, China’s oil demand, the second largest in the world, can alter the forecast for world oil use if a further decline in industrial activity occurred or any new policies were introduced by the government. World oil demand is forecast to continue its growth in 2013 to reach 0.8 mb/d, to average 89.6 mb/d.

Japan’s oil demand forecast for 2013 indicates that the usage of fossil fuels for electricity-generation will continue to dominate, since there are no other options — apart from nuclear — for covering the country’s large electricity requirements. During 2013, OECD Pacific oil consumption is projected to remain at the same level as in 2012.

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