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World Oil Demand - Mar 07

Source: OPEC_RP070302 3/15/2007, Location: Europe

World oil demand in 2006
Warm weather in the first and fourth quarters of last year negatively affected global oil demand. The product declining the most was fuel oil, mainly in the OECD countries, as a result of fuel switching to natural gas. Total world oil demand growth for 2006 is estimated at 0.8 mb/d or 1.0%, a slight downward revision from our last MOMR. Last year’s oil demand growth came solely from the Developing Countries, with China and the Middle East as the main contributors.

Warm weather in North America affected oil demand growth. Due to a fuel switching among power plants, the US fourth-quarter oil demand declined by 125,000 b/d or 0.06% y-o-y. The product declining most was residual oil which fell 0.37 mb/d due to fuel switching. Motor gasoline demand grew by 0.8%, which was half the average normal growth of 1.6%. As a result, North America’s fourth-quarter oil demand growth was revised down by 0.1 mb/d to show a y-o-y decline of 0.16 mb/d. For the whole year, US oil demand fell by 0.3 mb/d.

OECD Europe
Although crude imports rose 4%, oil demand for Spain fell 4% y-o-y in December. Most of the December oil imports went into strategic oil storage. LPG declined the most, at 17%, followed by fuel oil with 14.2%. Due to the unusually warm winter, OECD Europe oil demand growth for the fourth quarter was revised down by 0.16 mb/d to show a y-o-y decline of 0.2 mb/d. For the year, oil demand growth in OECD Europe declined by 0.08 mb/d y-o-y.

OECD Pacific
Consumption of kerosene, which is mostly used in Japan for heating purposes, was low due to the warm winter in the Pacific region, causing fourth-quarter oil demand growth to be almost flat. In total, OECD oil demand growth for the fourth quarter declined 0.38 mb/d y-o-y to average 49.62 mb/d.

Developing Countries
Middle East and India oil demand was as strong as expected in the fourth quarter. Fourth-quarter oil demand growth in the Middle East is estimated at 0.36 mb/d y-o-y to average 6.17 mb/d. Saudi Arabia and Iran were the biggest consumers in the region at 1.9 mb/d and 1.7 mb/d in the fourth quarter y-o-y. Oil demand in India grew by 2.9% in 2006 to average 2.6 mb/d. A boom in new car sales helped gasoline demand to reach its highest growth of 5.7% y-o-y.

Other Regions
Both FSU’s and China’s apparent oil demand for the fourth quarter turned out to be stronger than expected; hence, oil demand growth in the fourth quarter was revised up by 0.1 mb/d each. China’s oil demand growth is estimated at 0.63 mb/d to average 7.2 mb/d in 2006. 12 mb of Chinese oil imports in December were used for filling the first SPR, which was commissioned in late summer 2006.

Forecast for 2007 demand
Oil demand in North America has picked up due to the normal winter. Fuel demand was strong, which affected total world oil demand. World oil demand growth for 2007 is forecast to see growth of 1.3 mb/d or 1.5%, an upward revision of 0.1 mb/d from our previous estimate.

According to the EIA weekly report, US demand for February skyrocketed by 1.4 mb/d y-o-y. Motor gasoline grew by 3.5% y-o-y in February, slightly lower than in January. Distillate fuel oil, the key product for oil demand, grew by a stunning 0.35 mb/d or 8.1%. This compares to last year when distillate fuel oil demand was hammered badly by the warm winter, growing at a dismal 1.3%. The cold winter in North America pushed the demand for petroleum products in Canada by 5% in January y-o-y. Canadian diesel consumption grew by 0.03 mb/d y-o-y in January. As a result of higher-than-expected oil demand, oil demand growth in North America in the first quarter of 2007 was revised up by 0.1 mb/d y-o-y to show growth of 0.3 mb/d to average 25.45 mb/d. In total, the OECD countries oil demand growth is forecast at 0.2 mb/d to average 50.35 mb/d in the first quarter.

OECD Europe
In addition to low transport fuel demand, the warm winter in Europe negatively impacted oil demand. As a result, oil demand in OECD Europe is expected to decline by 0.15 mb/d in the first quarter of 2007.

OECD Pacific
The Pacific Region is still experiencing a warmer than average winter. According to the Japanese Meteorological Agency, the February average was 8.6 degrees, which is 2.4 degrees above the 30-year average. The weather directly affects demand for kerosene and fuel oil. Japanese kerosene sales fell by 0.3 mb/d for January y-o-y. Furthermore, Japanese power plants have increased the utilization of nuclear generation over 70%, which in turn affected the consumption of fuel oil. In total, Japan’s domestic petroleum product sales for January fell by 0.65 mb/d or 14% y-o-y. Due to the decline in fuel oil and kerosene consumption in the OECD Pacific, oil demand consumption in the first quarter declined by a minor 0.02 mb/d to average 9.28 mb/d y-o-y.

Alternative Fuels
Three new biodiesel plants with a capacity of 1.05 mt will be commissioned this year in Indonesia, further expanding the Asian biofuel industry. Although Asia is following the US lead in the biofuel industry, this is negatively affecting grain prices and negatively impacting the environment worldwide. The biofuel industry is facing a financial problem caused by declining oil prices and a worldwide increase in feedstock prices. The EU is encouraging members to provide incentives to motivate this industry. Starting April 2008, the UK will mandate minimum biofuel sales of at least 2.5% of oil companies’ sales. The fall in diesel prices in Germany has so far reduced biodiesel consumption this year by almost 30%. Biofuel tax incentive lost its advantage which in turn affected biofuel demand for the first time.

Developing Countries
In Other Asia, led by India and Indonesia, oil demand showed strong growth in January. Indian oil demand for January grew by a stunning 7.5% or 0.2 mb/d y-o-y to average 2.8 mb/d. Taiwan’s January oil demand increased by almost 2% y-o-y halting a seven-month decline. Due to fuel switching, Taiwan’s fuel oil demand fell by 11%, although jet fuel increased 3.5% to meet growing leisure travel over the New Year holiday.

Strong economic activities in the Middle East are leading to healthy oil demand as expected. Middle East first-quarter oil demand growth is forecast at 0.3 mb/d to average 6.34 mb/d. Developing Countries oil demand is forecast to grow by 0.53 mb/d y-o-y in the first quarter.

Other regions
China’s apparent oil demand is expected to achieve strong growth exceeding 4.8% y-o-y for January. China’s net crude imports grew by 4.7% or 0.14 mb/d in January y-o-y. Strong economic activities along with the increase in new car sales have increased demand for petroleum products. China’s first-quarter oil demand growth is forecast at 0.34 mb/d to average 7.44 mb/d y-o-y. FSU apparent demand is expected to exceed previous estimates; hence, 2007 oil demand was revised up by 0.05 mb/d. Oil demand in Other Regions is forecast to grow by 0.5 mb/d in the first quarter to average 12.27 mb/d.

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