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World Oil Demand - May 13

Source: OPEC_RP130506 5/12/2013, Location: Europe

World oil demand
The latest estimates based on preliminary data for the first quarter of 2013 indicate that the increase in world oil demand was lower than projected in last month’s MOMR. As a result, world oil demand growth has seen a downward revision of around 80,000 b/d from last month’s report. However, the picture differs within the regions: OECD and China have been revised down by 90,000 b/d and 20,000 b/d respectively, while other non-OECD countries have been revised up by 30,000 b/d.

This has led to total growth of 0.9 mb/d in 1Q13 for global oil demand, a much higher increase than 0.4 mb/d during the same period a year earlier. Growth in the second quarter is projected to be lower at 0.6 mb/d as a result of last year’s high baseline – resulting mainly from direct crude and residual fuel burning for electricity generation in Japan. Growth in 3Q13 and 4Q13 is projected to be 0.9 mb/d and 0.8 mb/d, respectively.

Looking at absolute volumes, total demand is expected to average 89.0 mb/d in the first quarter, before declining to 88.6 mb/d in the second. The latter half of the year will see much higher oil use, reaching 90.1 mb/d and 90.9 mb/d in the third and fourth quarters, respectively. For the whole year, world oil demand growth is expected to increase by 0.8 mb/d to average 89.7 mb/d, unchanged from the previous assessment.

However, risks to the current forecast are skewed to the downside, not only in the OECD but also in the non-OECD, especially China. Indeed, risks to the OECD forecast remain firmly on the downside driven by ongoing downward revisions in the economic outlook for the Euro-zone area. At the same time, weaker-than-expected economic growth in China in the first quarter and the potential difficulty in achieving 8% growth this year may dent oil demand consumption.

For the OECD, the downward revision incurred in the first quarter was attributed to Europe and Japan, while the US saw an upward revision from the previous assessment. Recent statistical data for the US suggests positive growth during the first three months of this year for the first time since 1Q11. For the whole year, OECD Americas oil demand growth is expected to be flat, following a decline of nearly 0.3 mb/d in 2012.

In OECD Europe, the huge decline in oil demand last year seems to have eased in 1Q13, leading to a contraction of 0.3 mb/d compared with minus 0.5 mb/d in 2012. However, the ongoing financial crisis in the region may further reduce oil consumption.

For Japan, March data indicated a decline in domestic consumption of 0.2 mb/d, driven by lower direct burning demand and lower fuel oil consumption. Although power sector demand for petroleum products remained higher than before the triple catastrophe, the expected new guidelines for nuclear safety to come in July from the Nuclear Regulation Authority may imply lower oil use in the power sector by the latter part of the year. For the Asia Pacific region, oil demand is projected to decrease by 0.1 mb/d for the whole year, reversing higher positive growth of 0.35 mb/d in 2012.

Recent data for Chinese apparent oil demand dropped significantly between January and March, with March slowing to the most sluggish rate in seven months. Indeed, March apparent oil demand grew by just 2.0% compared with last year, a further deceleration from the average growth rate of 4.3% in the first two months of this year. This likely reflects some weakness in Chinese economic activity. The release of Chinese GDP data for 1Q13 came in below consensus at 7.7% versus an expected 8.1%, and down from the 7.9% set in the final quarter of 2012. The increased risk that Chinese oil demand growth will remain relatively weak in coming months is in line with the lower expected April PMI of 50.5 versus the consensus expectation of 51.5.

In contrast to disappointing data from China, India’s oil demand returned back to normal growth of 2.1% in March. This, combined with gradually improving economic activity in the rest of non-OECD Asia, will result in oil demand increasing by around 0.2 mb/d this year.

Brazil also saw healthy growth of 0.1 mb/d in February, following three consecutive months of growth. For the whole year, Latin America is expected to increase by 0.2 mb.

Looking beyond Asia and Latin America to elsewhere in the non-OECD, oil demand in the Middle East is projected to increase by 0.3 mb/d in 2013. This has been supported by remarkable growth in Saudi Arabian oil demand of 7% in 1Q13, driven by increasing requirements for industrial and transportation fuels.

Overall, current estimates call for global oil demand to increase by 0.8 mb/d this year, slightly higher than the growth seen in 2012. A large portion of the growth is seen coming from China, with a 0.4 mb/d increase. The other non-OECD countries are expected to add some 0.8 mb/d, with the Middle East region accounting for around 0.3 mb/d, followed by Other Asia and Latin America with growth of about 0.2 mb/d each. In contrast, OECD demand is expected to see a contraction of around 0.4 mb/d, which is slightly less than in 2012.

OECD Americas
Most recent available monthly US oil demand data for February 2013 indicates a slight decline in oil demand of 0.4%, or 90,000 b/d compared with the same month in the previous year. Increasing industrial production was the main factor behind a solid increase in propane/propylene requirement, while a decrease in driving primarily stemmed from higher fuel prices.

There was a sharp drop in gasoline demand compared to the previous month and the same month a year earlier. Cold weather also reduced driving miles, which negatively impacted growth in gasoline demand. Moreover, residual fuel oil requirements continued their downward trend for another month, showing a strong decrease of almost 23% y-o-y. The last month which recorded growth in residual fuel oil demand was August 2012. Preliminary weekly figures for March and April 2013 show that the picture remains unchanged compared to February 2013, with industrial fuels — mainly propane/propylene — on the rise, while transportation fuels are declining. Both months show slight y-o-y declines in the range of 0.2% to 0.4%.

The outlook in US oil consumption for 2013 is strongly dependent on the development and recovery pace of the US economy. Unemployment rates and fears of future rising inflation are some of the factors which could influence oil demand in the country. Nevertheless, the US Federal Reserve has already announced that it will continue efforts to keep interest rates low in order to support economic growth. Therefore, the outlook for US oil demand in 2013 remains unchanged from the situation one month ago. However, as the outlook of the US fiscal policy becomes clearer, oil demand could experience revisions in either direction.

In the latest report from March 2013, Mexico’s oil demand declined for the first time since September 2012 y-o-y by almost 0.12 mb/d. Both industrial and transportation fuels declined as Mexican factory activity saw its slowest rate since January 2013, driven by lower exports to the US, which is suffering from weak demand. Since manufacturing exports account for around one fourth of the country’s GDP, further developments in the Mexican economy and oil requirements are closely related with developments in the US economy in 2013.

Cold weather and increasing industrial activity pushed up Canada’s oil demand in February 2013 following a strong January. Oil usage in industrial fuels, and especially fuel oil, dominated these increases. Projections for Canadian oil demand in 2013 remain unchanged from those of the previous month, with expected oil requirements in 2013 remaining at the same level as in 2012. The country’s strong economic dependence on the US is — as is the case of Mexico — a leading influence.

While OECD Americas oil demand shrank by 0.27 mb/d last year, oil demand this year is expected to remain at roughly the same level.

OECD Europe
European oil demand contracted in year-on-year terms for another month in March 2013. Oil demand was on the decline not only in countries facing sovereign debt concerns, such as Spain, Italy, Portugal and Greece, but also in the UK and France. However, a cold March in 2013 did manage to limit these declines.

Oil demand in Europe’s Big Four economies was characterised by a strong contraction in industrial and transportation fuels, indicating that the region is moving steadily towards a deep economic recession. Additionally, the European auto industry saw another month of declining car sales in March of around 10% y-o-y, and projections show 2013 car sales declining 7% over 2012. Car sales are moving towards their lowest level in the last 20 years. In Germany and France, March 2013 car sales slumped by 17% and 16%, respectively. The UK was the only country which saw car sales increase in March 2013, with a rise of nearly 5%. The latest information shows German business sentiment falling in April 2013 for the second consecutive month, as a result of declining exports to Euro-zone and Chinese markets.

General expectations for the region’s oil consumption during 2013 have once more worsened since last month’s projections, mainly due to recent downward revisions to GDP in 2013. The only factor which might somewhat offset the expected declines in oil demand in 2013 would be the very low historical baseline.

European oil consumption in 2012 shrank by 0.52 mb/d as a result of the economic crisis in several regional economies. In 2013, oil consumption is projected to again decrease, but by a lower 0.32 mb/d, although risks remain skewed towards the downside.

OECD Asia Pacific
In Japan, March 2013 oil demand fell by 7.4% y-o-y as a result of milder weather leading to lower requirements for kerosene. A decline in petroleum product use in the power sector also affected Japanese demand in March. As was the case in the first two months of the year, March saw a decline of approximately 0.2 mb/d in direct burning of crude and fuel oil for electricity generation.

In contrast, demand in certain product categories improved compared with the previous month, most notably naphtha requirements for the petrochemical industry and jet fuel. Improving industrial activity implied increasing distillate demand in March relative to the previous year, while the same time frame saw decreasing new car sales, causing a substantial fall in gasoline requirements. The latest data, however, indicate an increase of almost 2% in car sales during April 2013; the first monthly increase since August 2012.

The wild card for the 2013 Japanese oil demand outlook is whether or not some nuclear power plants will restart later in the year. Currently, only two of Japan's 50 nuclear reactors — Kansai Electric's Ohi No. 3 and No. 4 units in Fukui prefecture — are operating, but they are expected to interrupt their operation for maintenance in September 2013. In addition, the finalisation of new safety regulations from the Japanese Nuclear Regulation Authority (NRA) will not take place before mid-July. All nuclear power utilities will be required to comply with these safety regulations prior to resuming operations. Japanese government officials have recently stated that there is a possibility that operations will resume at some of the country’s nuclear reactors later this year, possibly by the end of 3Q13, at the earliest.

As far as the outlook for 2013 is concerned, current indications remain unchanged from last month’s forecasts and imply that Japanese oil demand will fall by around 0.1 mb/d compared to 2012, with risks continuing to be on the downside.

In South Korea, oil consumption in February 2013 fell by 0.08 mb/d, y-o-y. The increase in naphtha for the petrochemical industry was more than offset by shrinking requirements in all other main product categories, notably LPG, residual fuel oil, distillates and gasoline. Current projections for South Korean oil consumption during 2013 remain unchanged compared with last month’s forecasts, i.e. with oil consumption expected to remain flat compared with 2012.

OECD Asia Pacific oil consumption grew in 2012 by 0.35 mb/d, resulting mainly from Japanese direct crude/fuel oil burning for electricity generation. OECD Asia Pacific oil consumption is projected to fall slightly by 0.09 mb/d in 2013, due to the fading out of baseline effects and to the possibility of more frequent substitution of fuel with natural gas.

Other Asia
In March 2013, India’s oil demand returned back to normal growth at 2.1% y-o-y. All product requirements grew y-o-y, with the exception of jet fuel/kerosene and fuel oil, which fell 3% and 4%, respectively. Growth in naphtha sales was solid for another month as a result of increasing activity in the country’s petrochemical sector.

As new auto sales continued to decline in March 2013, gasoline requirements grew marginally, despite reductions in fuel prices. During the fiscal year, which ended in March 2013, Indian car sales declined for the first time in the last 10 years as a result of the country’s economic slowdown. LPG requirements did not grow for the fifth consecutive month due to increasing LPG retail prices and caps on LPG cylinders.

The overall forecast for 2013 Indian oil consumption remained unchanged compared with last month’s projections, with the country’s fiscal deficit continuing to impose some downside risks.

In Indonesia, increasing transportation and industrial fuel requirements — notably gasoline — resulted in an overall increase of 1.2% in oil requirements during February 2013 y-o-y. The Indonesian government announced on 30 April 2013 its decision to raise subsidised fuel prices in an effort to reduce state costs, leaving the time and exact value open. Indonesia subsidises 88 RON gasoline, gasoil and kerosene, but not 92 RON and 95 RON gasoline. The subsidised prices for 88 RON gasoline and gasoil are 4,500 rupiah per liter, compared with the market price of 10,000 rupiah per liter. A future possible reduction in subsidies would definitely impose a strong downside risk to the country’s oil demand, of which transportation fuels comprise around 40%.

In Thailand, February 2013 oil requirements grew strongly for one more month, by 7%, with the bulk of these volumes coming from distillates, LPG, gasoline and naphtha y-o-y, mostly driven by industrial and petrochemical activities. Thailand’s oil demand is also, as is the case for Indonesia, influenced by existing LPG subsidies. Thailand’s National Energy Policy Council (NEPC) plans to meet in the near future and decide on a reduction for at least part of the LPG subsidies. The plan was first announced last December by the Ministry of Energy’s Energy Policy and Planning Office (EPPO); it proposed gradual price rises for the three consumers sectors — residential, industry and transportation. It has, however, been postponed several times due to a survey of a proposed subsidy scheme for street vendors and low-income earners. Thailand’s LPG demand is approximately 0.25 mb/d; residential, transport, industry and petrochemical sectors account for approximately 40%, 12%, 13%, and 35% of this figure, respectively. The process of phasing out 91 RON gasoline in Thailand, which began in January 2013, led to approximately twice as much ethanol demand as vehicles switched to gasohol, a blend available in 10%, 20% and 85% ethanol concentrations.

Overall, Other Asia’s oil demand saw strong growth of 0.31 mb/d y-o-y in 2012, partly as a result of excessive Indian diesel demand for the power generation sector. In 2013, oil demand is expected to see continued solid growth of 0.23 mb/d.

Latin America
February 2013 was another month showing strong growth in Brazil, with oil demand increasing by 0.1 mb/d compared with February 2012. As was the case in January 2013, industrial fuels — notably residual fuel oil — were the main contributors to this growth which stemmed from strong industrial production, especially manufacturing activity.

In Argentina, oil demand in February 2013 grew only marginally by 0.4% y-o-y; increasing requirements for gasoline and LPG have been mostly offset by decreasing distillates demand. Latest preliminary Ecuadorian data for March 2013 showed a slight decrease in oil requirements y-o-y — gasoline requirements rose marginally, while fuel oil demand shrank slightly.

Latin American oil consumption in 2012 grew by 0.20 mb/d. In 2013, Latin American oil consumption is projected to increase by around 0.23 mb/d.

Middle East
In Saudi Arabia, 1Q13 oil demand grew remarkably at 7% y-o-y as a result of increasing requirements for industrial and transportation fuels, while relatively mild weather implied less direct crude burning. In addition to road transport, which is anticipated to continue to increase in the coming months, the petrochemical sector is also expected to add a significant amount to oil demand growth as a result of new ethylene capacity additions.

Oil consumption in Kuwait also grew strongly during 1Q13, by 4% y-o-y, with distillates accounting for the bulk of the increase. Similarly strong oil demand in 1Q13 has been observed in Iraq (10%) and Qatar (18%), y-o-y. Growth in Middle East oil use during 1Q13 was mainly led by industrial and transportation fuels, as a result of a strongly growing economy and industrial production.

The outlook for Middle East oil demand in 2013 has been revised upward since last month’s projections, reflecting the upward revsision in GDP gorwth, and the risk remained skewed to the upside.

Middle East oil consumption grew by 0.25 mb/d in 2012; oil consumption in 2013 is projected to increase by a higher 0.30 mb/d.

The growth in China’s oil demand in March fell by just 2% y-o-y, the lowest percentage seen since August 2012. This was a result of a slowdown in economic growth, mainly affecting industrial fuel demand. For all of 1Q13, China’s oil demand grew by only 0.3 mb/d or 3.5%, compared with 0.6 mb/d or 5.0% in 4Q12. This likely reflects some weakness in Chinese economic activity as Chinese GDP data for 1Q13 came in below consensus.

Nevertheless, March demand for transportation fuels, especially gasoline, grew as a result of lower fuel prices and rising auto sales, up 13% in March 2013, y-o-y. Moreover, jet fuel demand rose for another month due to healthy growth in the country’s aviation sector. The latter was supported by reductions in domestic jet fuel prices by the National Development and Reform Commission (NDRC). Most recently, the NDRC also announced cuts in gasoline and diesel retail prices by 395 and 400 yuan/mt respectively, effective 25 April 2013. These are the first adjustments since the introduction of a new pricing mechanism last month and account for a 4.6% and 5.2% reduction in the prices of the two products. Finally, the NDRC announced that it posts regular updates every 10 working days on product price adjustments in an effort to increase transparency.

Chinese oil demand is expected to pick up in 2Q13 due to increasing oil usage in the agricultural sector. However, any rise is likely to be limited given the slower economic momentum. Chinese oil consumption grew by 0.33 mb/d in 2012, while oil consumption in 2013 is projected to increase by 0.35 mb/d, unchanged from last month’s projections.

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