World oil demand in 2006 is now estimated to average 84.2 mb/d, with a growth of 1.0 mb/d or1.2%. This represents a downward revision of 0.1 mb/d to world oil demand growth from the lastMOMR due to the slowing global economy.
Warm weather, higher oil prices and the relatively lower natural gas prices affected oil demandmostly in the OECD. The removal of price subsidies in some Asian countries further dampenedoil demand growth in the first half of this year.
However, in Other Asian countries booming world trade is expected to boost transport fuelconsumption despite the decrease in power plant demand for fuel oil. To meet the increasingdemand in Asia, the region was forced to import fuel oil from the Middle East in order to offsetthe shortfall in the supply chain. China's economic activities are supporting the strong oil demand growth expected for this year and will last until year-end. According to official news reports by business leaders, the Zhenhai oil storage with a capacity of 5.2 million cubic metres is reported to have started being filled.
Estimate for third quarter 2006
Robust US September oil demand growth did not offset the summer decline. According to theweekly EIA report, September gasoline demand in the USA was up by 3.9% y-o-y and totalproduct demand rose 2.8% for the same month. The refinery input increased by a stunning 13%y-o-y in September in anticipation of winter demand. Of course, the high demand in Septemberwas partially due to the low 2005 base which was affected by the hurricane. As a result of fuelswitching, fuel oil demand was down by 39% in September y-o-y. January-September averagegasoline and fuel oil consumption grew by a meagre 1% each y-o-y. Thus, the low oil demand inJuly and August caused oil consumption to decline further in the third quarter. Hence, the NorthAmerican third-quarter y-o-y oil demand was revised down by 0.17 mb/d to show minor growthof 0.07 mb/d.
Due to higher oil prices, diesel and jet fuel demand in Canada was down by 5% and 12% in July compared to the previous month. The increase in fuel oil demand did not offset the decline in total oil demand of more than 2% in July. In total, OECD third-quarter oil demand growth y-o-y was revised down by0.3 mb/d.
As seen in the first half of 2006, low heating oil demand in Europe negatively affected total oildemand. Low consumption of heating oil caused oil demand in France to drop by 5.8% in Augusty-o-y. Low demand for transport fuel caused a further decline in third-quarter oil demand. As aresult, third-quarter oil demand growth in OECD Europe was revised down by 0.1 mb/d to endthe third quarter with a decline of 0.08 mb/d y-o-y.
Japan's peak gasoline season (June-August) was hit by bad weather early in the summer. Also,recent gasoline data shows that August gasoline sales were down by 5%, which was attributed torecord-high prices. Due to the continuation of the trend which had started early in the summer,Japan’s August oil imports declined by 4% y-o-y. Hence, OECD Pacific third-quarter oil demandis estimated to show a decline of 0.02 mb/d.
Strong economic growth in the Middle East drove y-o-y third-quarter oil demand up further. Third-quarter oil demand growth for the Middle East is estimated at 0.3 mb/d y-o-y to average 6.14 mb/d.
Thailand's transport fuel demand was down on average for the first eight months in 2006. To some degree, the slide in demand for this fuel was a result of higher oil prices and an increased use of alternative fuel.Thailand’s January-August demand for gasoil declined by more than 8% y-o-y. Hence, oil imports over the first eight months of the year were down by 1.5% y-o-y. Gasohol consumption in Thailand increasedthis year but the negative effect on conventional gasoline consumption will be modest due to theminor differential in prices, which is less than 5%.
India’s strong economic growth of 8.1% has pushed new car sales up by one third so far this year;however, oil demand growth is not matching the economic growth. The January-August y-o-y oildemand growth is lagging behind with a moderate growth of 2%.
Gasoline and fuel oil were the main products supporting oil demand growth in China in August. Gasolineconsumption is expected to grow by 15% driven by the 30% increase in new car sales in China in August. The new car sales increased by a similar amount over the first eight months of 2006.
Strong demand forced refiners to reduce gasoline exports for August by more than 60%. The fuel oil margin is attracting refiners; therefore, August y-o-y imports were up by half. Growing demand for petroleum products in China caused a domestic shortage which was offset by imports. January- August oil imports surged 15% y-o-y.
FSU oil exports decreased in the third quarter, causing apparent demand to stop the decliningtrend and show a third-quarter growth of 0.07 mb/d. However, vigilance is necessary here as thepreliminary data showed a further decline in the FSU oil exports that might be reflected in thenext MOMR.
Forecast for 2006 demand
OECD: North America’s oil demand growth in the fourth quarter of this year is expected to follow thecyclical pattern to be somewhat stronger than in the first three quarters. However, slowingeconomic activities in the USA are curbing the oil usage in the fourth quarter, hence the expectedgrowth in that quarter will be minor. North America’s y-o-y oil demand growth is forecast todecline by 0.06 mb/d to average 25.40 mb/d for 2006.
The improved European economic outlook for the rest of this year is not expected to help the oildemand forecast. The y-o-y oil demand in OECD Western Europe is projected to show flatgrowth for 2006. On the other side of the world, slowing Pacific economic activities along withthe high oil prices are curbing oil demand growth for the fourth quarter. The OECD Pacific oildemand is forecast to shrink by 0.07 mb/d y-o-y to average 8.52 mb/d in 2006.
As a result of the latest revisions, total OECD oil demand for the whole year was revised down by0.1 mb/d to end the year at minus 0.1 mb/d for 2006.
In the wake of recent oil price declines, the Indian government warned its domestic market thatthere will be no price cut of petroleum products at least not until the oil price drops below the$50/b level. The Indian economy enjoys a healthy growth of 8.1 %; however, Indian oil demandgrowth is not expected to exceed 2.5% in 2006. Unlike in other countries in the region, Thailand’srefineries are keeping the same crude run rates despite the fall in gasoil cracks. The end of therainy season in Thailand along with a high agricultural season is expected to boost gasoil demandin the fourth quarter. Oil demand growth in DCs is expected to reach 0.6 mb/d to average23.1 mb/d in 2006.
As predicted early in the year, strong economic activities in the Middle East are expected tocontinue until year-end. Oil demand for the Middle East for the whole year is expected to increaseby 0.34 mb/d to average 6.2 mb/d. With the strong growth in the Asian economies, the negativeeffect of high oil prices on oil demand is easing. The Other Asia y-o-y oil demand growth isforecast at 0.1 mb/d to average 8.8 mb/d in 2006.
China’s accelerating economy is still exceeding expectations with GDP estimated at 10.2% for2006. The filling of the newly-constructed strategic oil storage reportedly has begun. Barring anyfuture government interference in curbing future demand, oil demand growth will reach 8.2% byyear-end. China’s oil demand growth is expected to remain strong at 0.54 mb/d to average 7.1 b/din 2006.
Increasing attention should be paid to China’s new plan is to boost ethanol output via extensivesubsidies. The plan is aimed at boosting the ethanol production by 300% in four years.
As seenelsewhere, especially in the USA, there is a major push towards biofuel consumption; however,even with the current high oil prices, this fuel still needs subsidies to survive.
Forecast for 2007 demand
World oil demand forecast for the year 2007 remains unchanged. World oil demand growth fornext year is forecast to grow at a moderate rate of 1.3 mb/d or 1.5%. There is no major economicgrowth forecast revision that could affect next year's oil demand forecast. China and the MiddleEast will lead world oil demand growth with 0.42 mb/d and 0.30 mb/d respectively.