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World Oil Demand - July 14

Source: OPEC_RP140706 7/10/2014, Location: Europe

In 2014, world oil demand was relatively unchanged from the previous MOMR; total world oil demand growth for 2014 now stands at 1.13 mb/d after a marginal downward revision of 10 tb/d, accounting for the latest actual data for 2Q14. In 2015, world oil demand is projected to grow at a higher rate than in 2014, growing by 1.21 mb/d from the 2014 level to average around 92.35 mb/d. The 2015 growth level of 1.21 mb/d signifies a 0.08 mb/d increase from the growth foreseen for this year. Non-OECD countries are likely to lead oil demand growth with 1.18 mb/d in total demand while OECD nations are predicted to marginally rise for the first time since 2010, recording growth of 35 tb/d. The progress of economic development in major economies around the globe is the key risk factor affecting the world oil demand projection in 2015.

World oil demand in 2014
OECD Americas
The latest available April 2014 US monthly oil demand data has remained in line with the upward trend observed since the beginning 2014. US oil demand in April 2014 grew by 1.3% as compared to the same month in 2013, with these four months of the year showing oil requirements higher by around 0.2 mb/d as compared to the same period last year. The main characteristics in the first four months of 2014 are growing distillate fuel requirements as a result of improving industrial production and improvements in gasoline demand, while, during the same period, residual fuel oil and propane/propylene demand fell as a result of increasing substitution with natural gas.

Moreover, rising employment figures in the first four months of 2014 have also contributed to increasing oil requirements. Preliminary weekly data for May show oil demand increasing y-o-y, while for June the overall growth appears to be diminishing.

The product pattern observed for the first four months of 2014 continues, i.e. increasing distillate fuel and gasoline demand together with falling residual fuel oil and propane/propylene requirements. The risks in the evolution of 2014 US oil demand remain strongly dependent on the development and recovery pace of the US economy, which is skewed to the downside compared to last month.

May 2014 Mexican oil demand decreased by 4.4% y-o-y. As of April 2014, fuel oil and distillates were the products accounting for the bulk of these decreases and are the result of increasing substitution of coal and natural gas. 2014 Mexican oil demand is expected to fall by 1.3% y-o-y.

Increasing oil demand in the transportation sector, which was partly offset by declining LPG requirements, led to an overall 0.4% decrease in Canadian oil demand for the first four months of 2014. Projections for 2014 Canadian oil demand remain unchanged from those in the previous month, leaving oil requirements during 2014 2.2% higher than the level of 2013.

In 2014, OECD Americas oil demand is projected to grow by 0.19 mb/d as compared to 2013.

OECD Europe
European oil demand contracted in May 2014 y-o-y for another month in line with the continuing economic concerns in some parts of the region. The magnitude of shrinkage was larger than in previous months, partly indicating baseline effects from the second quarter of last year. As in previous months, oil demand contracted much more strongly in countries that undergo stringent austerity measures and aim at the reduction of public debt.

Oil requirements in May 2014 fell in all Southern European countries, the largest in Spain, Italy, Portugal and Greece. Early indications for May 2014, however, showed some gains in Germany and the UK, while during the same month, France continued to be on the decline. Nevertheless, the positive momentum in auto sales continued for the ninth month in May 2014 in almost all European major markets. The general expectations for the region’s oil consumption during 2014 have remained stable since the last month’s projections. Improvements in the economy of some countries are counterbalanced by high taxation policies in oil use throughout the region.

European oil demand is projected to decrease in 2014 by 0.17 mb/d as compared to a contraction of 0.18 in 2013.

OECD Asia Pacific
In Japan, May 2014 y-o-y oil demand decreases were once more largely originated in direct fuel and crude burning for electricity generation as a result of increasing substitution with natural gas and coal. Decreases have also been seen in the requirements of all other product categories with the exception of jet fuel, leading to an overall 0.2 mb/d y-o-y decline in oil demand in May.

Nevertheless, Japanese auto sales, which have been in the negative in April 2014 due to increasing taxes, returned to a minor positive growth of 0.4% y-o-y in May.

The status of the Japanese nuclear power plants remained unchanged since last month,with any additional operation in 2014 not likely.

During 2015, however, especially the second half, some nuclear plants are likely to restart operation. As far as the outlook for 2014, Japanese oil demand is concerned, current indications remain roughly unchanged from last month’s forecasts with the risks being skewed more towards the downside as a result of the recent deceleration in industrial production and employment rates.

In South Korea, May 2014 came up strongly increasing by 0.08 mb/d y-o-y with the bulk of increases being in transportation fuels, namely diesel and gasoline, as well as naphtha for the petrochemical industry. The outlook for South Korean oil consumption during 2014 remained unchanged as compared to last month’s projections.

OECD Asia Pacific oil consumption is expected to fall in 2014 by 0.12 mb/d, after falling by 0.23 mb/d in 2013.

Other Asia
For the month of May 2014, oil demand growth in India was slightly above last year’s average of 50 tb/d, rising by 1.5% to 56 tb/d, as compared to the same period in 2013.

The averages of the total products consumed stands at 3.76 mb/d. The products performance was mixed. While gasoline, fuel oil and other products were in the negative territory, LPG, jet/kerosene and diesel oil were in the positive. The significant point to highlight in the development of the products mix is the diesel oil performance, which grew for the first time since May of 2013 with the exception of moderate growth seen in November 2013. Diesel oil registered growth of 18 tb/d or 1.3% y-o-y. A number of factors can be attributed to improvement in diesel consumption.

First, the recovery of the power situation led to a decreased deficit compared to the 2013 levels, from -5.7% in 2013 to -3.8% in 2014. Second, increased port traffic and cargoes handled at major ports contributed positively to this growth. Third, the lifting of a 19-month ban on mining at an iron ore production site prompted additional diesel consumption in May 2014.

Another significant development was the LPG performance, which rose to just below 130 tb/d or around 27% as compared to the same period in 2013. The reason continued to be the same as in previous months with support coming from increased residential usage as logistical constrains eased, increasing the number of subsided cylinders and the low baseline of 2013. Gasoline demand, on the other hand, fell for the first time since mid-2012, decreasing marginally by around 3 tb/d or 0.7% y-o-y, mainly due to a higher historical baseline and the effects of the heat wave across the country on vehicle movement.

In Indonesia , the latest available April 2014 data are led by rising demand for LPG and fuel oil, the first mostly used in the residential sector and the latter for industrial purposes, partly offset by falling demand for gas/diesel oil. 2014 Indonesian oil demand is dependent on the overall economic performance and the level of subsidy cuts for petroleum products.

In Taiwan , oil demand grew for another month, by almost 2%, in April 2014 as compared with the same period last year, with the bulk of the increases coming from LPG, jet/kerosene and diesel oil usage, respectively, while fuel oil and other products recorded declines. The risks to 2014 oil demand in Other Asia are currently balanced between the upside and downside as a result of the possible overall economic improvement in the biggest oil consumer in the region, India, and the general economic performance of some countries in the region. Other Asia’s oil demand is expected to grow at the rate of 0.23 mb/d in 2014.

Latin America
Oil demand in Latin America is projected to grow by 0.23 mb/d in 2014 to reach 6.73 mb/d. April 2014 product growth in Brazil showed a rise in consumption as compared to last year. The growth level was above 0.1 mb/d or 4.5% y-o-y. All products showed positive growth with the exception of LPG and diesel oil, which weakened slightly. Transportation products, namely gasoline and ethanol, recorded the highest gains, by 72 tb/d and 31 tb/d, respectively. More significant was the growth of fuel oil in percentage terms as it grew by more than 25% y-o-y. The main reason can be attributed to construction work and activities in preparation for the World Cup.

In Argentina , which accounts for around 11% of Latin America’s oil demand, oil product consumption in the country fell marginally in April 2014 according to the latest data and total oil demand growth decreased marginally, too. In terms of product performance, fuel oil, other products and gasoline were on the rise while LPG, jet/kerosene and diesel oil decreased.

In 2014, Latin American oil demand expanded by 0.23 mb/d, similar to the levels seen in 2013.

Middle East
In Saudi Arabia , oil demand figures continued their robust momentum during the month of May 2014, rising by around 274 mb/d or by more than 12% as compared to the same month in 2013. All products grew at different rates, with the highest growth originating in industrial and power generation fuels. Fuel oil increased by around 85 tb/d or more than 29% while crude oil utilized for direct burning for power generators also increased by more than 0.13 mb/d or 24% y-o-y. The increased usage of these products was mainly due to the newly commissioned desalinization plant located in the northwest of Jubail and the aluminum smelter plant, which commenced operations early this year. Part of this growth is also a result of the increased use of air conditioning, signalling the start of the increased summer oil requirements.

Additionally, other products, LPG and jet/kerosene grew at the high rates of 20%, 11% and 10%, respectively. Transportation fuels, namely gasoline and diesel, also grew but at lower rates than the rest. Oil demand is expected to remain robust in the coming months as the transportation and industrial sectors in the country perform well due to peak demand in summer and activities related to Ramadan and Eid al-Fitr. In 2014, Middle East oil demand is anticipated to expand by 0.31 mb/d as compared to 0.22 mb/d in 2013.

Chinese oil demand indicators have been rather mixed as some products showed strength, such as gasoline and LPG, while other products showed some weakness, such as diesel oil and fuel oil. Focusing on positive developments, gasoline consumption in the country continued to grow at an exceptional pace. The product grew by 0.22 mb/d or more than 10% as compared to last year. Growth is also noteworthy in LPG consumption, which increased by more than 0.18 mb/d or 21% from the same period last year. The increase in gasoline is supported by passenger car sales, which continue to rise. The latest data for car sales in China show figures around 1.6 million units for the months of May 2014, a 14% rise from the levels of last year. It’s worth mentioning that diesel and gasoline account for more than 50% of the country’s oil demand consumption.

On the other hand, gasoil demand growth figures in China along with softening economic indicators have raised concern in the industry regarding the direction of oil demand growth in the Middle Kingdom. Monthly consumption of gasoil, the major product in the country, has been declining constantly from the end of last year, when compared with the same month a year earlier. The product declined by 55 tb/d or 1.6% in May 2013 as compared to the same month last year, mainly as a result of softening momentum in economic activities. This is despite some improvement in the Chinese official manufacturing purchasing managers index (PMI), which remained above the 50 threshold in May, at 50.8, a slight improvement from April’s level of 50.4.

China’s oil consumption is anticipated to rise in 2014 by 0.33 mb/d, which is within the historical average growth level of China for the past six years.

World oil demand in 2015
In 2015, world oil demand is forecast to grow by 1.21 mb/d y-o-y, approximately 0.1 mb/d higher than growth during 2014. Breaking down this projection by regions, the OECD will grow slightly, by 0.04 mb/d, the first time since 2010, with the Americas being the only OECD region rising into positive growth; Europe is expected to decline slightly, while Asia Pacific oil demand will also be weaker as a result of some nuclear plants likely starting up again.

In the non-OECD region, growth is expected to be around 1.18 mb/d, with slightly lower Chinese oil demand growth. On the products side, focus will be on diesel oil and gasoline to fuel the ever-growing transportation industry, and to a lesser extent on petrochemical feedstocks, namely LPG and naphtha. However, there are certain risks associated with the 2015 projection, which could impact oil demand figures in both directions. These include the development of economic activities in major consuming nations, the strength of substitution with natural gas and other fuels, subsidy programmes and their removal strategies, the effect of commissioning/delays/closure of mega projects and programmes for fuel efficiencies, especially in the transportation sector.

In OECD Americas, oil demand is projected to be slightly higher by 0.21 mb/d as compared to 2014. US oil demand is mainly driven by higher projected economic growth. 2015 US oil demand is projected to grow slightly higher than the growth in 2014, by approximately 0.2 mb/d. As was the case for 2014, 2015 forecasts are mainly dependent on the materialization of projected growth in the US economy. Another factor that could push US oil demand upwards is further expansion in the petrochemical industry, while some downside risks are imposed by increasing fuel substitution with natural gas and planned implementation of fuel efficiencies in the road transportation sector. Also, in 2015, the growth in Canadian oil requirements is projected to be roughly at the same levels as in 2014. While in Mexico, higher economic growth will turn oil demand growth into the positive, by around 1% y-o-y.

In OECD Europe, the projected improvements in the economies combined with the very low historical baseline are calling for a contraction in oil requirements, which would be slower in magnitude than the one in 2014. However, there are considerable risks to the downside, such as economic concerns, expected closures of refineries, fuel substitution and efficiencies in the road transportation sector. In 2015, the contraction in the region’s oil demand is forecast to be at 0.07 mb/d.

In OECD Asia Pacific, oil demand projections for 2015 have been reached under the assumptions that some of the nuclear plants will rejoin operation and that some refinery closures are to be expected, resulting in a decrease in oil demand requirements by approximately 0.14 mb/d. In South Korea, expectations for 2015 retain roughly the same growth as in 2014.

Other Asia’s oil demand is projected to be marginally lower, reaching 0.22 mb/d as compared to 2014. In 2015, assumptions are focused towards higher GDP growth than the current year, and the emphasis will be on road transportation fuels as well as petrochemical industry fuels, continued substitution with natural gas and coal, mainly in India, and finally, subsidy reduction programmes and policies.

In Latin America, oil demand during 2015 is expected to grow by 0.23 mb/d with better GDP growth as compared to 2014. Preparations for the 2016 Summer Olympics in Brazil are expected to result in increased oil usage, while a slight decline in oil demand in Argentina and other countries in the region can be expected.

In the Middle East, oil demand during 2015 will remain broadly unchanged from this year’s level. Assumptions are based on healthy demand for transportation and industrial fuels, continued use of crude and fuel oil in direct burning, increased requirements for the petrochemical industry, additional refining capacities while the already high baseline is expected moderate oil demand growth.

In China, oil consumption is projected to increase by 0.31 mb/d, slightly less than growth in 2014. This forecast is based on assumed stronger petrochemical feedstock consumption and rising oil demand for transportation and industrial sectors, while slightly lower GDP growth as compared to 2014, higher fuel qualities targeting reduced emissions, and continuation of fuel substitution with natural gas and coal are the factors to be watched. Total products consumed are anticipated to be around 10.7 mb/d.

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