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.
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.
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.
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.
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.
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.
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.
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.
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.
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.