World oil demand in 2005
Latest data from the OECD has resulted in a minor upward revision of 70,000 b/d to the total world oil demand. North America and Western Europe were revised up by 40,000 b/d and 30,000b/d mb/d.
World oil demand in 2006
World oil demand in 2006 is estimated to average 84.26 mb/d, representing a growth of 1.0 mb/d or 1.2%, no major change from the last MOMR.
US oil demand is finally picking up following a normal fourth-quarter upward cycle. Other OECD countries are following suit with a feasible oil demand growth in October. Given the expected normal winter temperatures, this upward trend is expected to continue until year-end.
Following the increasing trend in Europe to support biofuels via intensive subsidies, Finland is proposing a new law to increase biofuel consumption by almost 6% by 2010. A similar programme exists in the USA to increase the biofuel demand via tax cuts until 2012.
Other Asia economic activities are expected to be stronger for the rest of 2006, which is anticipated to pull oil demand growth upward. As a result of the strong economy and a booming transportation sector, India’s oil demand is expected to show moderate growth in 2006. The Middle East region continues to experience the strong momentum in oil consumption, marking the second-largest growth in world oil demand this year.
China’s new strategic oil storage is officially ready and the filling process has begun, official media reported. The filling process is based on the oil price level as the Chinese want to take advantage of the recent drop in crude oil prices. China’s new car sales are estimated to exceed five million cars this year. The large growth in vehicle numbers in China is driving transport fuel demand. Hence, China's oil demand is exceeding expectations in the second half of 2006. China is gearing up its energy strategy, which emphasizes energy saving and efficiency. Furthermore, China is pushing its biofuel programme with ambitious plans to increase the production by an average of 40% annually.
Estimate for third quarter 2006
North America’s oil demand is picking up momentum tracking a typical winter upward cycle. According to the EIA weekly, US oil demand grew by 1.1 mb/d or 5.5% in October y-o-y, twice the growth of the previous month. However, in a cumulative term, US oil demand changes so far this year are still negative 0.4% y-o-y. The biggest increase has been in motor gasoline which increased of 0.36 mb/d. However, the largest decline was in fuel oil due to fuel switching in power plants which started early in the year. Unlike September, US net oil imports in October were lower, but still on the high side with 7.3% y-o-y growth.
The summer driving season, low gasoline prices and holidays in Canada drove gasoline demand up 2.7% in August over the previous month; however, total y-o-y petroleum product demand was slightly down for the month. Canada’s agricultural season also pushed diesel demand further up in August, after stagnant demand in July. Meanwhile, growth in US oil demand in September was not enough to offset the large decline which occurred in July. Hence, North America’s third-quarter y-o-y oil demand was revised down by 0.13 mb/d, representing a minor decline of 0.06 mb/d. In total, OECD y-o-y third quarter oil demand growth was revised down to 0.25 mb/d.
Warm October weather affected gasoil demand in Germany; however, the gasoil imports in November should pick up in the second half of the month prior to a 16% VAT increase scheduled to take effect in January 2007. As a result of intensive subsidies, biofuel usage is getting stronger across the OECD. A new production plant in Germany commenced last month with a capacity of 100,000 tonnes of biodiesel annually. This new plant puts Germany’s biodiesel capacity at 212,000 tonnes annually. Due to the massive fuel switching among power plants, moderate economic activity and soft transport fuel demand, OECD Europe’s third-quarter oil demand is estimated to decline by 0.1 mb/d y-o-y to average 15.46 mb/d.
As a result of lower demand, Japan’s y-o-y oil imports fell by 2% for the month of September. Hence, petroleum product sales declined by 6.5% in the same period y-o-y. Fuel oil and kerosene were the products that declined the most with each losing 13%. Along with slow industrial production, transport fuel consumption has been on the decline affecting third-quarter total oil demand in the region. As a result, the y-o-y OECD Pacific third-quarter oil demand growth was revised down by 0.08 mb/d to show a total decline of 0.1 mb/d.
The strong oil demand growth in the Middle Eastern countries continued as expected. Third-quarter y-o-y oil demand growth is estimated at 0.3 mb/d to average 6.3 mb/d for the Middle East.
As a result of high oil prices and low economic activities, Taiwan’s September y-o-y consumption of petroleum products fell by almost 8%. Fuel oil demand had the largest y-o-y decline of 5.8% in September. Low consumption of fuel oil and diesel in power stations and fishing industries were the main factors behind the large drop in September. Although diesel prices in Taiwan have risen three times so far in the year, August y-o-y diesel consumption still rose by 1.5%, but then sharply dropped in September.
India’s oil demand showed a strong y-o-y growth of 5.9% to average 2.5 mb/d in September. Transport and agricultural consumption were the main factors behind September's robust oil demand growth. Jan-Sept y-o-y gasoline consumption grew by more than 5.5%, followed by diesel with growth of 4.8%. For the total Developing Countries, the y-o-y third quarter came as expected, growing by 0.55 mb/d to average 23.11 mb/d.
Strong economic activities along with the price shield that protects Chinese transport consumers have kept oil imports and demand on the rise so far this year. The latest data indicate that China started filling its long-awaited strategic storage of 32.7 mb, which has boosted oil imports. Hence, y-o-y third-quarter oil demand was revised up to reflect the stronger apparent oil demand by 0.15 mb/d to show a growth of 0.58 mb/d y-o-y. China’s y-o-y January-September crude imports and refinery runs surged by 18.3% and 5.2% respectively. In total, net oil imports including products grew by 24% for the same period. China’s apparent September oil demand averaged 7.4 mb/d,
representing a y-o-y growth of 0.6 mb/d or around 10% It should be noted that China’s apparent demand in 2005 was exceptionally low, and furthermore the filling of new strategic oil reserves accounts for some of the apparent demand, especially in the third and fourth quarters. Crude imports jumped up by 29% in September y-o-y. The agricultural season pushed up demand for diesel which encouraged refiners to minimize kerosene production. Increasing fuel oil demand caused imports to increase by 19% in September y-o-y. The booming airline business pushed kerosene imports to a record-high as apparent kerosene demand grew by 25% y-o-y in September. Due to growing demand, China’s petroleum product additive imports also grew strongly.
As a result of the slow world oil demand, FSU oil exports declined in the third quarter which was not matched by the oil production, causing apparent demand to show moderate growth. FSU thirdquarter growth is estimated at 0.08 mb/d y-o-y.
Forecast for 2006 demand
Lower oil prices are expected to moderately increase oil demand in North America; however, slowing economic activity in the USA is likely to curb oil usage in the fourth quarter. Nevertheless, oil demand is expected to follow the cyclical winter pattern and to be somewhat stronger than the first three quarters. The y-o-y fourth quarter was revised up by 0.1 mb/d to reflect strong winter oil demand, although expected oil demand growth will not be sufficient to offset the total year demand decline. For the year, North America’s oil demand changes are forecast to decline by 0.08 mb/d to average 25.42 mb/d for 2006.
A similar fourth-quarter oil demand growth pattern is expected to occur in all the OECD regions. The OECD countries fourth-quarter oil demand growth is estimated at 0.6 mb/d y-o-y to average 50.5 mb/d.
The Indian economy experienced a robust growth of 8.1%, and transport and agricultural fuels are expected to grow strongly. However, total oil demand growth for 2006 is not expected to exceed 2.5%.
Other Asia region is expected to show stronger oil demand growth in the fourth quarter compared to the previous quarter. Other Asia oil demand growth is estimated to increase by 0.18 mb/d y-o-y to average 8.8 mb/d in the fourth quarter. Led by the Middle East, oil demand growth in DCs in 2006 is expected to reach 0.6 mb/d to
average 23.0 mb/d.
In an effort to curb crude oil exports, China increased export tariff by 5%. With the end of the summer season, China’s fourth-quarter demand should be more stable. However, the filling of the newly constructed strategic oil reserves may play a major role in China's fourth-quarter oil demand. There will be no seasonality that may drastically affect petroleum product demand in the fourth quarter. With this in mind, if there is no change in gasoline export rates, then China will have an excess of gasoline supply until year-end. Due to the unexpected growth in China's oil demand in the third quarter, y-o-y oil demand growth was revised up by 0.04 mb/d to show an
increase of 0.57 mb/d for 2006. As was mentioned earlier, the filling of new Chinese oil storage may push fourth-quarter oil demand stronger than the current estimate.
Forecast for 2007 demand
World oil demand forecast for 2007 has been slightly increased to reflect the upward revision on China's oil demand growth. As a result world oil demand growth for next year is forecast at a moderate rate of 1.33 mb/d or 1.57%. Minor upward revision to China’s GDP growth forecast affected oil demand prospects for 2007. China and the Middle East will lead world oil demand growth with 0.45 mb/d and 0.30 mb/d respectively.