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World Oil Demand - Sep 06

Source: OPEC_RP060909 9/15/2006, Location: Europe

World oil demand in 2006
World oil demand in 2006 is estimated to average 84.4 mb/d, representing a growth of 1.2 mb/d or 1.4%. As a result of slower-than-expected economic growth in the first half of the year, the world oil demand growth estimate for the year has been revised down by 0.1 mb/d since the last MOMR.

The USA is pushing its strategy to diversify sources of energy and the latest efforts were to encourage great use of biofuels in the energy system.

Above average heat in the summer in China along with an unusual boom in car sales helped drive up oil demand. While it has to be noted that new efforts by the government to cool the economy could impact future oil demand, China has found achieving its planned energy conserving goal of reducing consumption by 4% this year to be more difficult than expected. The cabinet issued a guideline recently to remind officials to meet this goal. China’s National Development Reform Commission (NDRC) suggested that increasing the share of both the service and high tech sectors by 1% in the economy would reduce energy consumption by 1%. The government also plans to look at the energy price structure. However, despite these efforts, China’s oil demand increased by more than 11% in the second quarter.

Estimate for third quarter 2006
World oil demand in the second quarter was weaker-than-expected early in the year. Recent data for OECD oil demand showed a decline in the second quarter. Despite the stabilization of gasoline prices, the latest data from the USA revealed that the US summer gasoline demand grew by only 0.68%, which was below the 1.6% annual average. Therefore, North America’s secondand third-quarter oil demand has been revised down by 0.2 mb/d and 0.1 mb/d. Furthermore, higher oil prices encouraged power plants to switch to less expensive natural gas, which is considered to be one of the main factors behind sluggish US oil demand so far this year. According to the weekly EIA report, August y-o-y oil demand was down by 90,000 b/d. Residual fuel oil experienced the highest decline of 35% since the same period last year. In total, the OECD countries y-o-y third-quarter oil demand growth is estimated at 0.3 mb/d.

Chinese data showed strong consumption, which along with the Middle Eastern oil demand growth helped to offset the expected decline in OECD countries in the third quarter.

OECD Europe
Despite the improved outlook for European economies for the rest of this year, oil demand did not keep pace with economic growth. The past cold winter affected oil demand positively, not only in the first but also in the second quarter. Therefore, OECD Europe’s y-o-y second quarter oil demand growth was revised up by 0.1 mb/d. Low summer gasoline consumption and fuel switching by European power plants were the main reasons behind the sluggish oil demand in the third quarter. Although German oil product sales showed a year-to-date growth of almost 1.5%, July sales were 0.7% lower than the same month last year. OECD Europe’s third-quarter oil demand is estimated to grow by only 20,000 b/d.

OECD Pacific
South Korean oil imports rose by 8% y-o-y in July, up from only 3% in June, while total oil demand rose by only 0.6%. However, a recent tax hike caused diesel consumption to decline by almost 19% in July. It is important to note that the recent move by the power plants to substitute gas for liquid has affected fuel oil demand causing it to decline by 38% in July y-o-y. Although the Japanese oil product sales for July were ahead of June, the July y-o-y sales were down by 0.7%. High gasoline prices along with the bad weather during the summer driving season curbed the y-o-y gasoline demand growth in July to only 1.4%. As has been seen elsewhere, high oil prices encouraged Japanese power plants to switch to natural gas; causing fuel oil consumption to decline 6% y-o-y in July. Oil demand in the OECD Pacific region as a whole is expected to show a meagre growth of 40,000 b/d in the third quarter.

Developing Countries
Strong economic growth in the Middle Eastern countries continues to drive up oil demand. Thirdquarter y-o-y oil demand growth is estimated at 0.3 mb/d to average to 6.3 mb/d for the Middle East.

Oil demand in the “Other Asia” region is picking up more than expected despite the fact that some Asian countries such as Thailand are pushing for alternative fuels. So far this year, the usage of alternative fuels in Thailand has increased three-fold. Apparently continuing efforts by Thailand’s government to reduce oil demand via improving alternative fuels will affect oil demand, but only to a certain degree.

The Taiwanese economy pushed for more oil; oil demand for the first six months of this year grew by almost 4%. Naphtha demand increased in the first six months by 23% y-o-y; however, high oil prices seem to have negatively affected the gasoline demand so far this year.

Other Regions
China’s economy grew by more than 11% in July, resulting in a trade surplus that reached $14.6 billion, causing oil consumption to rise by 8% in comparison to the same month last year. The strong increase in demand was fueled by the unusually high temperatures and the stunning increase in car sales. In the first seven months of this year, oil demand grew by 650,000 b/d or 10% y-o-y. Car sales over the same period were up by more than a third. The transportation sector is considered one of the main oil demand drivers in China. Fuel oil imports jumped by half in July, attributed to the above average heat this summer. In the first seven months of this year, crude runs grew by 6% y-o-y leading to oil import growth of 16% over the same period. Furthermore, recent data shows stronger second-quarter demand than previously forecast, resulting in an upward revision of 70,000 b/d in oil demand growth for that quarter.

Despite newly imposed export taxes, FSU oil exports increased, which occurred as a result of high oil prices. This affected apparent demand more than anticipated earlier leading to a downward revision of 60,000 b/d in oil demand growth in the second quarter.

Forecast for 2006 demand
OECD
In North America, oil demand growth in the fourth quarter of this year is expected to be somewhat stronger than in the first three quarters given the stabilization of gasoline prices and the expectation of normal weather in the fourth quarter. However, the slowing economy along with high oil prices has impacted oil demand growth leading to a downward revision of 0.1 mb/d for the region. The very hot summer in the USA, which put more pressure on electricity demand, failed to boost oil demand as there was major fuel switching by power plants from liquid to gas. Moreover, the summer peak for gasoline was not as strong as expected.

Oil demand in OECD Western Europe is projected to increase by a meagre 30,000 b/d to average 15.5 mb/d in 2006. OECD Pacific oil demand is expected to increase in the fourth quarter, but not as much as previously forecast. Slow industrial production is causing oil demand to weaken further resulting in a downward revision of 0.1 mb/d in fourth-quarter oil demand growth. OECD Pacific demand is now expected to grow 130,000 b/d in the fourth quarter.

Developing Countries
Developing Countries account for 92% of world oil demand growth in 2006. In Other Asia, the negative effect of the removal of price subsidies eased in the third quarter. Pakistan’s diesel demand is forecast to jump 7% this year.

Due to fuel substitution and conservation mainly in India, Other Asia’s oil demand growth for the year is estimated to reach only 120,000 b/d. Developing Countries oil demand is expected to grow 0.6 mb/d for the year to average 23.1 mb/d. The strong economic activities in the Middle East are expected to continue until year-end. Oil demand for the Middle East is expected to increase by 0.3 mb/d in 2006 to average 6.2 mb/d.

Other Regions
China’s accelerating economy exceeded expectations with GDP growth estimated at 10.2% for 2006. The August trade surplus reached a record-high of $18.8 bn. This overwhelming economic achievement has had an effect on oil demand this year. Barring a major push by the government to curb demand, oil demand growth will reach 8.3% by year-end. China’s oil demand growth should remain strong and increase by 0.5 mb/d to average 7.1 mb/d in 2006. China’s plan to develop rural areas will be one of the factors driving higher energy consumption over the remainder of this year.

Forecast for 2007 demand
The world oil demand growth forecast for the year 2007 remains unchanged. Due to adjustments in 2006, the absolute level was revised down by 0.1 mb/d. World oil demand growth for next year is forecast at 1.3 mb/d or 1.5%. As expected, Developing Countries will contribute the lion's share of the oil demand growth for 2007. The expected oil demand growth in the OECD countries will account for only 18% of total world oil demand growth. China will lead the world oil demand growth with 0.4 mb/d, while the Middle East will see oil demand growth of 0.3 mb/d.

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