Estimate for 2005
Global oil demand in 2005 is estimated to have grown by 1 mb/d or 1.2%, no major change from last month's assessment. However, looking at the absolute historical
data for world oil consumption, there is an upward revision of 0.1 mb/d from last month's estimate. The Middle East was revised up by 70,000b/d. Both Latin
America and Africa were revised up by 20,000 b/d each.
Oil demand growth in 2005 remained unchanged from the previous MOMR. On a regional basis, Developing Countries account for 75% of oil demand growth, while
OECD with 0.2 mb/d made up less than one-sixth of total global oil demand. On the other hand, China’s apparent demand appears to have risen by a disappointing 0.2% in sharp contrast to a GDP growth rate of nearly 10%.
World oil demand in 2006
World oil demand growth in 2006 is forecast at 1.4 mb/d or 1.7% to average 84.6 mb/d, somewhat lower with respect to the estimate in the last MOMR. These
revisions are mainly attributed to the first quarter of the current year as the data becomes available. There are minor downward revisions to global oil demand totaling
nearly 0.06 mb/d. More than half of the total OECD oil demand in 2006 will be in the USA. However, US oil demand lost momentum in the first quarter due to
warmer weather and high gasoline prices. But US oil demand is expected to stop its decline and show a positive increase which will last until the end of the year. Although the US GDP is growing at 3.4%, the price elasticity is getting stronger, resulting in a reduction of gasoline demand. Due to these factors, together with the
warmer than normal weather so far this year, oil demand is expected to slow down in North America. Growth in 2006 is estimated at 0.2 mb/d or 0.6% to average
25.6 mb/d. Although the economic indicators showed strong economies and the weather was colder in the first quarter in OECD Europe and Japan, oil demand figures were disappointing which can partly be attributed to the high oil prices. While secondquarter oil demand is normally weak, y-o-y world oil demand in April
was lower than expected. Using the US demand as an indication, world oil demand is expected to lose momentum in the first half of this year. The largest share of the increase in world oil demand growth will come mainly from the developing world, mostly due to the strong economic growth. However, the high oil prices and the
removal of the fuel subsidies are expected to negatively impact oil demand, especially in South-East Asia.
Estimate for first quarter 2006
North America, OECD Pacific, China, Middle East and the FSU were the main contributors to the first-quarter demand revision. US oil demand has been on the
decline for several months. North American y-o-y oil demand in the first quarter was down by 0.4 mb/d or 1.5% Warmer weather and high prices were seen to be
the main reasons behind the fall.
Western Europe’s y-o-y oil demand rose 0.2 mb/d, mainly because of the cold weather and the sudden shortage of natural gas in the first quarter. The increase of
new sales of diesel engine vehicles in the EU-15 has further boosted diesel demand in the region. Due to existing high energy taxes in Europe, the recent increase in
world oil prices had a minimal effect on gasoline and diesel demand. In total, however, OECD’s oil demand declined by more than 0.6% in the first quarter of 2006. Japan’s colder weather increased demand for fuel oil in the first quarter of 2006 by 20%, while higher LNG prices motivated power plants to shift to liquid products. Japan's y-o-y oil imports were up by almost 9% last month. In South Korea, demand for heating oil softened due to the warm weather. Based on the latest data, half the country’s oil demand is consumed by the industrial sector, and its March y-o-y oil demand slid down by almost 5%. In total, oil demand in the OECD
Pacific declined by 138,000 b/d in the first quarter of 2006.
Due to the high economic growth in the OPEC countries, oil demand has shown strong growth in the first quarter of the current year. Middle East y-o-y demand in
the first quarter was up by 0.3 mb/d and this trend is expected to strengthen until the end of 2006. Indian oil demand started the year with a contraction dating back
to September 2005 before bouncing back in February and March to end the first quarter with a y-o-y rise of 32,000 b/d or 1.2%. Preliminary data shows
moderately stable oil demand growth which is expected to last throughput 2006. With regard to Other Asia, the high oil prices along with the reduction of fuel
subsidies resulted in an increase in domestic fuel prices causing oil demand to soften further. Other Asia’s y-o-y first quarter oil demand grew by 81,000 b/d.
Unexpectedly, the FSU's high growth in exports to take advantage of the high oil prices resulted in lower demand, causing the y-o-y first quarter demand to decline by 131,000 b/d. Although FSU production grew in the first quarter by 0.4 mb/d, the growth was at a slower rate than the export growth rate. China’s first-quarter
apparent demand was higher than expected resulting in a 90,000 b/d upward revision. In y-o-y terms, demand was up by 500,000 b/d. Oil imports during January
and March were higher than the same time last year. March y-o-y demand rose 6%, the second strongest rise in the past five months. This growth was supported by
the strong demand in the transportation sector. This sector, along with the temperature and the seasonal agricultural demand for diesel, will be the main factors behind the second-quarter oil demand in China.
Forecast for 2006 demand
With the exception of Western Europe, oil demand for the OECD countries is slowing. North America’s oil demand is expected to grow but not at the rate expected early in the year. Due to the increased US demand for gasoline and jet fuel, North America’s oil demand is expected to grow by less than 1% in 2006 over the
previous year. In total, OECD oil demand growth for 2006 was revised down by 80,000 b/d to average 0.3 mb/d, resulting in total oil consumption of 49.9 mb/d.
New trends in the USA to reduce energy consumption could result in further lower oil demand for the rest of the year. Such trends include the anti-SUV movement, attempts by airlines to utilize more fuel-efficient airplanes, and efforts in the power sector to consume more natural gas. Based on these factors, North America’s oil demand growth was revised down by 60,000 b/d. The waiving of certain petroleum product specification restrictions aims at easing the hiking of gasoline prices may increase gasoline imports and indirectly increase summer gasoline demand.According to the EIA’s weekly data, oil imports in April were 4% below the previous year and the y-o-y April distillate demand was down by 3%. US oil demand is expected to grow in the second quarter by more than 190,000 b/d over the same time in 2005. This modest growth is estimated to continue for the rest of the year. In Mexico, due to both the strong growth in the economy and fuel subsidies, the strong gasoline demand seen in the first quarter is expected to continue for the year. This growth is expected to lead to a rise in Mexico’s gasoline imports this year. In another part of the world, the new diesel engine vehicle movement in the EU-15 is expected to continue and this will help diesel demand to grow steadily by 2.1%
until the end of the year. This movement is negatively affecting gasoline consumption, which is expected to grow by around half a per cent. Japan is planning to reduce its oil consumption via switching to nuclear-operated power plants. However, this move could provoke some domestic anti-nuclear movements. Japan's new movement towards smaller cars has a negative impact on product demand.
At 43%, Developing Countries in 2006 are expected to contribute the lion's share to world oil demand growth. The Middle East alone is expected to contribute
around 20%. The Middle East’s oil demand growth was revised up by 0.05 mb/d stand at 0.27 mb/d for the year. Unlike last year, oil demand in India is expected to
grow at a modest rate in the first half of 2006. Although the government has reduced the tax on new cars and improved the power supply sector, massive subsidies
on electricity to farmers will curb the use of oil. Furthermore, the railway in India, which makes up one third of the country's transportation, provides a major
alternative to dieselconsuming trucking for industrial and farming transportation.
China itself is adding another 32% to the world oil demand. Chinese oil demand is expected to increase by 0.5 mb/d in 2006. Due to increased economic activities in
China, apparent oil demand showed a strong jump in the first quarter. As a result, China’s oil demand growth was revised up by 0.05 mb/d for the year. China’s new
strategy to reduce energy demand is challenged by finding means to achieve the target. All Chinese economic indicators are higher in comparison to last year. Based on the normal energy elasticity factor, oil demand in China should rise further; however, other factors, especially the high oil prices, and newly imposed taxes are
slowing oil demand. Furthermore, the recent increase in the interest rate and the newly proposed retail price hike for gasoil and gasoline could negatively affect future
oil demand. There is a belief that the summer temperature and the hydropower reservoirs could be important driving factors for oil demand in China, at least for the
short term.Cooler summer weather will reduce the power generation demand for fuel during the peak summer season. Despite the proposed increases in gasoline and
domestic diesel prices, new car sales are expected to rise sharply. This is due to the reduction on tariffs, which may lead to an increase in gasoline demand in 2006.
Additionally, China is planning to partially fill its newly built SPRs which is likely to impact future Chinese oil demand growth.