World Oil Demand - Oct 13

Source: OPEC_RP131006 10/10/2013, Location: Europe

World oil demand
World oil demand is estimated to average around 89.74 mb/d in 2013, representing an increase of 0.82 mb/d, or around 1.0%, compared with the previous year. This is broadly unchanged from the previous report, despite various adjustments to regional demand growth figures. For 2014, growth is expected to increase by around 1.0 mb/d, or 1.2%, over the current year to reach 90.78 mb/d.

As in the previous report, most revisions to the 2013 figures were carried out in the OECD regions, namely OECD Americas (up by 16 tb/d); OECD Europe (up by 40 tb/d); and OECD Asia Pacific (down by39 tb/d ). These changes reflect the most recent updates to actual data in these regions and mirror the improvement in macroeconomic indicators, as well as the switch to coal and LNG as a substitution for fossil fuels in the case of OECD Asia Pacific. Downward revisions also occurred in the non-OECD regions, namely Other Asia (down by 11 tb/d), as a result of lacklustre economic signals, in addition to the impact of reduced subsidies in a number of countries of the region. On a quarterly basis, the second and third quarters were revised higher by 36 tb/d and 20 tb/d, respectively, with the majority of the adjustment attributed to OECD Europe. Conversely, the fourth quarter was adjusted lower by 30 tb/d, due to the effect of economic concerns and subsidy cuts in Other Asia and the FSU.

In OECD Americas, particularly the US, strong July actual oil demand figures and flat-tostrong preliminary figures for August and September draw positive expectations for third quarter oil demand results. Healthy car sale statistics, relatively high consumer confidence, an improvement in unemployment figures and expanding manufacturing indicators (PMI) provide support for these expectations. On the other hand, the on-going budgetary standoff and the effects of sequester cuts could hamper the positive momentum in the US economy, with some impact on the world economy as well.

In OECD Europe, aviation sector fuels supported overall oil demand in the ‘Big Four’ economies of the region. The cumulative oil demand figures for these economies over the first eight months of the year are currently flat with jet fuel, diesel oil and LPG recording positive growth, while fuel oil, gasoline and other products remain either flat or declining. Overall, oil demand growth continues to shrink relative to the previous year; however, at a slower pace than in previous months, hinting at some improvement in the economy, particularly as the region is now officially out of recession.

In OECD Asia Pacific, the impact of coal substitution for fossil fuels in power generation is now largely visible in the oil demand statistics. Japan continues to make efforts to minimise the use of fuel and crude oil in its power plants, pushing the coal consumption to high figures.

In the Other Asia region, flat-to-falling oil demand growth is mainly attributed to the weakening economies evolving from the depreciation of currencies in India, Indonesia, Malaysia and others. Other positive oil demand signs are coming from countries such as Taiwan, Thailand, and Hong Kong, which are experiencing increased industrial activities and transportation fuel consumption relative to the previous year.

OECD Americas
The latest US monthly data for July 2013 showed a significant y-o-y rise in oil demand of 0.55 mb/d or around 3%. This marks the strongest monthly gain so far in 2013 in y-o-y terms. All main products rose, with the exception of residual fuel oil, which fell sharply.

The most notable development was in motor gasoline, which surged by 0.25 mb/d similar to the growth levels registered back in August 2012. This comes on the back of recent positive data for passenger car sales coupled with the peak summer driving season, which traditionally starts at the end of May and ends with the US Labor Day holiday at the beginning of September. US light passenger vehicle sales rose by around 17% in August to stand around 1.5 million vehicles, the twenty-seventh consecutive y-o-y increase. Year-to-date, passenger car sales reached approximately 10.5 million vehicles, up by almost 10% from last year’s levels.

Preliminary weekly data for August 2013 shows flat growth y-o-y, with kerosene and propane/propylene registering gains while motor gasoline and distillate fuel oil marginally declined, and distillate fuel oil dropped deep into negative territory. On the other hand, September 2013 preliminary data shows a very strong upsurge in oil demand, growing by around 6% to average 19.45 mb/d with all product categories exhibiting significant growth, with the exception of residual fuel oil. Relatively high consumer confidence, the tick down in unemployment figures, the increase in construction activities, the increasing manufacturing indicator (PMI) and encouraging passenger car sales figures all provide reasoning to such preliminary figures.

Going forward, the down risk potential could stem from pending fiscal issues and the effects of budget cuts in the overall economy. These issues will remain of public concern and could dampen consumer confidence in the short term, thus potentially having an adverse impact on overall oil consumption.

In Canada, total oil demand consumption in July 2013 fell below the 2 mb/d level. Contrary to the previous month’s oil demand growth figures, July data showed a decline of 0.16 mb/d or more than 7%, as all main product categories witnessed a decline, with the exception of LPG. The fuel oil performance was rather poor, with the largest decrease at about 50%, largely as a result of switching programmes due to environmental regulations. The effect of such programmes can be seen in the LPG numbers, which were almost 70% higher than the same period last year.

In Mexico, overall oil demand data for August was relatively flat. The negative changes for LPG, gasoline, diesel oil and other products were almost offset by matching rises in jet fuel and fuel oil. Gasoline, the dominant product in the country, accounting for around 40% of oil consumption, dropped during the month of August 2013 despite encouraging car sales figures. The drop was modest compared with last year, at around 10 tb/d which translates to 1.2%, on the other hand, car sales kept a growing momentum since late last year. In the month of August, the car market in Mexico grew by around 6% y-o-y with year-to-date sales also higher by around 9%. In 2013, oil demand in OECD Americas is expected to grow 0.12 mb/d over the previous year. In 2014, oil demand in the region is projected to increase by 0.11 mb/d compared to the current year.

OECD Europe
Oil consumption in the Europe ‘Big Four’ during August remained positive. Demand in Germany, France, Italy and the UK grew by a combined 0.15 mb/d to stand at 6.8 mb/d, with the UK and Germany leading the group.

In particular, jet fuel consumption was notable, rising in the Europe Big 4 by more than 11% in August as flight operations expanded strongly during the month. Business confidence and tourist air travel have been gaining steam as improving economic conditions in Europe showed signs of stabilisation. Additionally, the low baseline in 2012 provided a greater gap between the yearly variance.

In the UK, overall oil demand was up by more than 15% y-o-y due to higher demand for transportation fuels, mainly jet fuel/kerosene and gasoline, which increased by almost 30% and 6%, respectively, and power generation fuels, namely fuel oil. The UK automobile market still outpaced most of the other European markets with a performance comparable to before the 2008 crisis. In August, the car market in the UK hit the 18th y-o-y consecutive rise, increasing by almost 11% y-o-y. Year-to-date sales were up to around 1.4 million vehicles, 10% higher than a year ago.

Oil consumption in Germany also grew, however to a lesser extent. Oil demand in the country increased by more than 2% during August to stand at 2.2 mb/d. Comparable to consumption in the UK, most of the rise came from transportation and power generation fuels, implying improvement in the economic momentum of the country.

In France and Italy, the picture was quite the reverse – both nations experienced dips in oil consumption in August, with France shrinking by more than 3% and Italy around 6% compared to the previous year. Targets to limit fossil fuel consumption in France were recently announced by the French President. The aim is to reduce energy consumption by 50% by 2050 and fossil fuel consumption by 30% by 2030. The emphasis will be on the development of a new generation of electrical hybrid cars, the improvement in home efficiency and the reduction of emissions through tax incentives. Some plans might come as early as 2017. France consumed about 1.5 mb/d during the month of August, with the bulk of consumption coming from diesel oil, which is widely used as a transportation fuel in the country.

For 2013, European oil demand is now projected to shrink by 0.27 mb/d, while oil demand in 2014 remains at the levels projected in the previous MOMR, namely a contraction of 0.17 mb/d from the current year.

OECD Asia Pacific
Fuel substitution in favor of coal pushed total Japanese oil consumption lower on a yearly basis. The use of fuel oil and crude as burning fuels for power generation plants has been shrinking steeply as the switch to coal and LNG picks up pace.

Fuel oil consumption dropped by a dramatic 0.15 mb/d or 21% in August. The consumption of coal surged to almost 6 million tonnes, according to the latest data. The consumption of kerosene used for heating purposes also dipped by more than 23% as the country experienced warmer weather conditions. However, jet aviation fuel consumption showed a different picture during the month as demand for the product registered steep growth compared to the same period last year, increasing by more than 48% due to increased air transport propelled by positive economic activities, as well as the low base of comparison.

Oil demand in Japan shrank by almost 5% y-o-y in August to leave the total oil consumption at 4.0 mb/d, representing a decline of 0.21 mb/d compared to a year ago.

In South Korea, oil consumption increased by 50 tb/d or more than 2% y-o-y in August. Gasoil, gasoline and jet kerosene all recorded positive gains, while LPG and bunker fuel consumption contracted. Gasoline demand stepped up during the month as the product registered a 12% gain y-o-y, reflecting the positive vehicle sales figures in the country. The South Korean vehicle market continued its encouraging 2013 performance, growing y-o-y sales in August, mainly as a result of low sales in the past year. However, cumulative sales from the beginning of the year were up by almost 2.5%. In August, the domestic market improved from a year ago, surging to more than 124,000 vehicles and an improvement of almost 30% from the same time last year. Cumulative statistics for the year are also encouraging with y-t-d sales recording more than 1 million vehicles or up by 2.5% y-o-y. The forecast for South Korean oil demand during 2013 and 2014 remained unchanged as compared to last month’s projections. However, oil demand for the OECD Asia region has been adjusted 39 tb/d lower in 2013. The downward revisions have been distributed between the first three quarters of the year – down 30 tb/d, 93 tb/d and 40 tb/d, respectively – mainly as a reflection of the latest actual data.

After the latest revisions, OECD Asia Pacific oil consumption is now expected to fall by 0.14 mb/d. In 2014, demand is forecast to continue declining, but by a lesser extent of 0.13 mb/d.

Other Asia
In India, the declining trend in oil demand continued in August due to the weakening economy evolving with the depreciation of the rupee. Oil demand remained flat y-o-y in August. Strong demand in gasoline, jet fuel and other products, notably bitumen, have been roughly offset by shrinking requirements for distillates, fuel oil, naphtha and LPG.

Despite a turbulent economic situation and resulting from a low base last year, passenger vehicle sales in August 2013 increased by 4% y-o-y. This helped push gasoline usage up by a remarkable 7% compared to the same period last year. Nevertheless, the short-term outlook for the Indian automobile market remains rather gloomy with high interest rates and fuel prices. A decline in distillate demand was caused by a combination of less consumption in the power sector, increasing fuel substitution with natural gas in the industry sector, as well as heavy rainfalls, implying lower activities in the agricultural sector. Decreasing fuel subsidies for LPG and less utilisation of naphtha in power generation also led to declines in both products. Fuel oil usage in the agricultural sector has, again this month, been heavily substituted with natural gas. Positive developments, however, were registered in the aviation sector and with jet fuel requirements, which increased due to more holidays during August and lower airline fares. Bitumen recorded a solid growth of 11% y-o-y due to a number of new road projects beginning in the same month.

The overall forecast for Indian oil demand in 2013 and 2014 has worsened substantially compared to last month’s projections as a result of the country’s growing fiscal deficit, which would inevitably imply, among others, a lower subsidy for petroleum usage.

In Indonesia, increasing fuel oil and LPG requirements have been outpaced by shrinking demand for all other product categories, the most prominent being distillates. The declines in distillates are due to sharply contracting industrial activity a fifteen month low due to weaker domestic demand. Indonesian oil demand, particularly for transportation fuels, is also greatly subjected to possible changes in the current domestic subsidy policy in order to limit the country’s fiscal deficit. Currently, in Indonesia, 88 RON gasoline, gasoil and kerosene are subsidised. Moreover, a possible new blending mandate could allow for an increase in biofuel blending shares in all sectors and would aim at reducing gas/diesel oil imports.

Subsidy reductions also took place in Malaysia and apply to 95 RON gasoline and diesel, whose prices raised by 11% in an effort to curb the fiscal deficit.

In Thailand, oil requirements fell by 3% y-o-y in July 2013, the bulk of these volumes originating in distillates and fuel oil, mostly driven by slower industrial activities. Taiwan’s flourishing petrochemical industry increased the country’s oil demand by 8% y-o-y in July 2013.

Other Asia’s oil demand is expected to grow at 0.20 mb/d y-o-y in 2013.

As for 2014, oil demand is forecast to grow once more at 0.24 mb/d.

Latin America
In Brazil, deceleration of manufacturing output for the first time since 2012 implied flat fuel oil requirements during July 2013 y-o-y. Nevertheless, solid demand for transportation fuels more than offset these declines, leading to an overall oil demand growth of 6% y-o-y. The latest information shows also that ethanol production and domestic sales increased strongly in July 2013.

In Argentina, oil demand in July 2013 grew strongly by 8% y-o-y; fuel oil, LPG and gasoline have been the most demanded product categories.

The latest Ecuadorian data for August show an increase of 3% y-o-y in oil requirements. Gasoline and diesel requirements rose substantially, while fuel oil demand shrank slightly and jet/kerosene requirements remained flat.

Latin American oil demand is projected to grow in 2013 by 0.23 mb/d and in 2014 by 0.24 mb/d.

Middle East
In Saudi Arabia, the first eight months of 2013 indicated a 2.2% y-o-y growth in oil requirements. The main factors behind the growth were increasing requirements for industrial and transportation fuels, and fuels for electricity generation, crude and fuel oil. Similarly, strong oil demand during the first eight months of 2013 has been observed in Qatar (20%), the bulk of which originated in the aviation and road transportation sectors, as well as in Iraq (7%) and Kuwait (1%).

The outlook for Middle East oil demand in 2013 remained unchanged since last month’s projections, with growth of 0.29 mb/d. In 2014, oil demand is projected to increase by 0.31 mb/d.

China’s oil demand came in strong during August with 5% growth y-o-y, similar to the growth in July 2013 and roughly at the average historical levels of the previous five years.

Increasing LPG requirements for the petrochemical industry in combination with rising jet fuel demand accounted for the bulk of these gains. Moreover, gasoline demand rose as a result of growth in auto sales, which advanced by 11% y-o-y. During the same month, distillate requirements rose in line with the improvements in industrial production.

Fuel oil requirements fell notably in August 2013 y-o-y. This decrease was implied by the switching of some independent refineries to crude as feedstock rather than fuel oil, thus utilising domestic resources. Recently, a number of measures towards higher quality of transportation fuels have been announced with the task to lower air pollution in big cities. These include the promotion of natural gas in transportation, the continuation of controls in new car registrations, and the improvement in the quality of fuels. The latter would imply increasing retail prices, which would be carried out, to a certain extent, by the consumers and may negatively influence consumption.

The overall 2013 and 2014 outlook remains rather skewed to the downside, mainly due to risks for an economic slowdown and the implementation of some of the above measures against air pollution in cities, in which case the transportation demand would slow down. In 2013, Chinese oil demand is expected to grow 0.33 mb/d, while oil demand in 2014 is projected to increase again by the same volume of 0.33 mb/d.

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