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World Oil Demand - March 15

Source: OPEC_RP150306 3/16/2015, Location: Europe

World oil demand grew by 0.96 mb/d in 2014, broadly unchanged from the previous month’s report, to average 91.2 mb/d, despite some minor adjustments. In 2015, world oil demand is anticipated to rise by 1.17 mb/d to average 92.37 mb/d, also in line with the previous month’s report. The bulk of growth is projected to originate from non-OECD, as most of the OECD countries are anticipated to show a contraction.

OECD Americas
The latest US monthly data for December 2014 shows substantial increases in oil demand growth y-o-y, amounting to almost 0.6 mb/d, the strongest monthly growth since December 2013. Almost all main products rose with the bulk of increases seen in gasoline, distillate/residual fuel oil and jet fuel oil, while propane/propylene requirements were once more on the decline. The main oil demand drivers in the US in the last three months of 2014 were increasing gasoline, distillate/residual fuel and jet fuel oil requirements as a result of a growing economy, higher industrial production activities and lower pump prices, which led to increasing mileage.

The year 2014 ended with oil demand growing for the second consecutive year, with gasoline, distillates and jet fuel oil carrying the bulk of these increases. Preliminary weekly data for January and February 2015 implies a continuation of the healthy growth seen during 4Q14.

For 2015, oil demand growth in the US will very much depend on the development of its economy. Potential is pointing to the upside as a result of the picture seen during 2H14. Driven mainly by economic growth, 2015 US oil demand is projected to grow by approximately 0.2 mb/d over 2014’s recorded volumes. Similar to 2014, 2015 oil demand in the US will depend on the level of substitution between natural gas and other fossil fuels, the severity of the winter season and the overall pace of growth in the US economy.

The weakening Mexican oil demand trend seen in 2014 continued also into 2015, with January 2015 oil requirements being negative. Oil demand fell by almost 0.04 mb/d or 2% compared with the same month in 2014. All products registered drops of different magnitudes, with the exception of jet fuel, which was slightly positive. Similar to the trend in 2014, residual fuel oil registered declines, falling by more than 15%, mainly as a result of substitution with natural gas. Mexican oil demand slipped by around 0.1 mb/d in 2014, however, the picture is expected to improve in 2015 towards a reduced decline of 0.01 mb/d y-o-y.

In Canada, December 2014 oil demand fell by approximately 0.1 mb/d, or more than 4% y-o-y. All main product categories witnessed increases, which were, however, more than offset by declining demand for LPG. Canadian oil demand contracted slightly in 2014 by 0.02 mb/d. LPG and jet fuel declines have been partly offset by gains in the demand of other petroleum products, particularly gasoline and gasoil/diesel. 2015 Canadian oil demand is projected to increase slightly with the risks remaining unchanged since last month.

In 2014, OECD Americas oil demand increased by 0.10 mb/d, while oil demand during 2015 will grow by another 0.20 mb/d compared with 2014 oil demand levels.

OECD Europe
The latest preliminary January 2015 data for the European Big 4 oil consuming countries shows a slightly increasing trend y-o-y. Losses in requirements for fuel oil and gasoline were more than offset by gains in demand for jet fuel/kerosene and LPG. In general, the year 2014 ended showing a contraction for the whole region by around 0.19 mb/d, with the bulk of losses occurring in the first half of the year and with some signals for improvement thereafter. Nevertheless, caution is required for projections as 2015 still includes, to a large extent, low baseline effects from previous years.

Undoubtedly, the current stabilizing oil demand contraction figures are in line with leading indicators, such as increasing industrial production and rising car sales. In fact, passenger car sales grew in January 2015 by almost 7% y-o-y for the biggest part of the region and for the seventh consecutive month. However, expectations for 2015 oil demand in the region remain unchanged since last month with potential towards the upside as the economy seems to be improving for most countries and as a result of the low historical baseline. Nevertheless, there are some significant downside risks that are directly related to the further development of the region’s economy during 2015.

In 2014, OECD Europe oil demand shrank by 0.19 mb/d, and oil demand is expected to decrease again during 2015, dropping by 0.10 mb/d compared with 2014.

OECD Asia-Pacific
In Japan, January 2015 y-o-y oil demand decreases were once more mostly in direct fuel and crude burning for electricity generation as a result of fuel substitution and warmer weather. Moreover, demand for gasoline and naphtha shrank further y-o-y, in line with drops in car registrations and a weakening economy. Decreases were partly offset by rising LPG and gasoil/diesel demand, which both grew by 2%. These developments led to an overall decrease of around 0.31 mb/d in Japanese oil demand for the month of January 2015, compared with the same month last year. As far as the outlook for 2015 Japanese oil demand is concerned, current indications remain roughly unchanged from last month’s forecasts, with the risks being skewed more towards the downside. Oil demand projections for 2015 are based also on the assumption that a couple of nuclear plants will re-join operation during the first half of the year.

In South Korea, January 2015 demand increased by 0.1 mb/d or almost 5% y-o-y with almost all the main product categories being on the rise, particularly gasoil/diesel, gasoline, naphtha and LPG. Hence, the bulk of increases concerned transportation fuels and feedstock for the petrochemical industry. On the other hand, and similar to previous months and the overall 2014 picture, residual fuel oil was lower by 4% y-o-y, mainly due to slower marine bunkering activities and less consumption for power generation as a result of warmer weather. 2015 oil demand growth in South Korea is expected to improve slightly from the levels seen in 2014 by around 0.03 mb/d. OECD Asia-Pacific oil demand declined in 2014 by around 0.18 mb/d, resulting mainly from less Japanese direct crude/fuel oil burning for electricity generation and a weakening economy. For 2015, demand is projected to fall by 0.12 mb/d. Other Asia
India’s oil consumption started 2015 on a positive note. Oil demand in January showed strong growth of 0.11 mb/d or 2.7% y-o-y, reaching total consumption of 4.03 mb/d, supported by strong demand for gasoline and diesel. Indian gasoline demand also rose in January, maintaining December’s healthy growth levels of above 50 tb/d. Gasoline demand grew by 69 tb/d or around 18% y-o-y in January, in spite of India’s government raising fuel taxes four times since November from 24% to 31% by almost $20/b, at a time of deteriorating oil prices. Demand growth for the product continues to grow at a steady pace.

Similarly, Indian diesel consumption continued its growth trend for the third consecutive month, higher by 51 tb/d or more than 3% y-o-y, reaching total consumption of 1.56 mb/d, despite consumption taxes increasing from 17% to 23%, to now stand around $17/b since November. Total consumption of LPG exceeded 0.57 mb/d, higher by 50 tb/d or 9% y-o-y. Total oil demand in India is anticipated to grow by around 94 tb/d or 2-3% in 2015, mainly as a result of better economic conditions in the country, promoting steady growth for gasoline and diesel of around 6% and 3%, respectively.

Taiwan’s oil consumption declined during the month of December 2014, while demand for products registered a decline of 53 tb/d from the levels seen in December 2013, equating to a negative 5% y-o-y. Total demand consumption for the country stood at 1.0 mb/d. The decline in oil consumption can mainly be attributed to slower overall economic momentum in the country as the purchasing managers’ index (PMI) was just at the threshold level of 50 points, above the contraction level. The 4Q14 PMI recorded the slowest reading in 2014.

In Indonesia, despite the positive total consumption growth level for the month of December 2014, with an increase of 40 tb/d or around 3% y-o-y, gasoil/diesel consumption in the country demonstrated slower growth than in previous months, mainly as result of subsidy reduction taking advantage of lower oil prices. Cumulative data for the whole of 2014 indicates that oil consumption was higher than 2013 levels by 27 tb/d or just below 2% y-o-y.

Looking forward, the risks for 2015 Other Asia oil demand growth are expected to be balanced with a slight positive effect from India as more data seems to suggest stableto- improving economic activity in the country. Transportation fuels are anticipated to be the main contributors to growth. In other parts of the region, subsidies on transportation fuels and the degree of their reduction may influence oil demand growth, however the current lower international prices should moderate the impact. Other Asia oil demand is anticipated to grow by 0.21 mb/d in 2014. As for 2015, oil demand is forecast to be 0.25 mb/d higher than in 2014.

Latin America
In Brazil, oil demand was strong going into January 2015, despite waning macroeconomic data. Oil demand recorded growth of around 0.13 mb/d y-o-y, with total consumption at 2.44 mb/d. Growth was led by gasoline, diesel and fuel oil. Gasoline demand was higher by 55 tb/d, or more than 7.6% y-o-y. Ethanol consumption was also on the rise by more than 30 tb/d or 13% y-o-y. Diesel demand continued to be strong, with total consumption of 0.96 mb/d in January, higher by 33 tb/d or more than 3% y-o-y. Diesel demand potential appeared despite slower industrial production in the country as an increase in consumption was linked to drought conditions, prompting additional demand from power generators and other sources. Fuel oil demand rose by 9 tb/d or by more than 10% y-o-y to reach total consumption of 99 tb/d in January. Similar to diesel, fuel oil consumption was on the rise as persisting drought conditions in the parts of the country encouraged additional use of fuel oil to compensate for hydro-electrical power reduction.

Oil consumption in Argentina declined in December 2014 as well as on a cumulative basis for the whole of 2014, declining by around 3% and 1%, respectively. All transportation fuels were down during December with diesel declining by more than 14 tb/d or 6% y-o-y. Vehicle sales dropped by as much as 36% in 2014 to 614,000 units with the outlook remaining bearish for the sector going into 2015 as the expiration of the government's subsidized car-purchasing scheme largely impacted sales growth. Looking forward, the risks for 2015 currently point downward as economic activity in Brazil is anticipated to slow and government spending on projects is reduced. On the other hand, the presence of lower oil prices in addition to the expectation of the hotter summer season in the country should keep demand for power generation above average.

Latin American oil demand is anticipated to grow in 2014 by 0.20 mb/d. During 2015, oil demand growth is forecast to be in line with the levels seen in 2014.

Middle East
In 2015, Middle East oil consumption is expected to continue growing at a steady pace, increasing by 0.28 mb/d from 2014 levels. Most of this growth is expected to come from Saudi Arabia with a forecast increase of 0.15 mb/d, more than half of the region’s expected growth.

The country’s growth rate for the month of January 2015 was at around 90 tb/d or 5% y-o-y, mainly due to fuel oil consumption in the country, which was higher y-o-y, possibly as a result of the product’s use as a burning fuel for power generation in the newly introduced refineries. However, demand for power generation usually slows down going into the winter season as consumption requirements for air conditioning usage is reduced. As a result, consumption for direct crude burning decreased sharply, dropping by more than 90 tb/d or 25% y-o-y. Nevertheless, yearly data for 2014 indicates better-than-expected growth in the country with an increase of more than 0.2 mb/d or 9% y-o-y. Most products were on the rise as the country continued to grow economically and demographically.

Other countries in the region showed mixed performances. While oil demand in Iraq declined in 2014 y-o-y, consumption in UAE, Kuwait and Qatar was on the rise. Going forward, Middle East oil demand is subject to the performance of various economies in the region, and the impact of lower oil prices on their spending plans will be an important factor to monitor. In 2014, Middle East oil demand growth was at around 0.25 mb/d, while oil demand in 2015 is projected to grow by 0.28 mb/d.

China
China’s oil demand growth eased in January 2015 from the high growth levels seen in 4Q14. Demand growth for the country registered at around 0.2 mb/d compared with the same month a year earlier. In absolute figures, total oil demand for the country stood at 10.4 mb/d. Products, on the other hand, have been on the rise on a y-o-y basis, with LPG and gasoline leading the gains with more than 0.1 mb/d of growth y-o-y. It is worth mentioning that due to the Lunar New Year holidays and delays of data publication, the analysis was based on preliminary data.

Gasoline growth was relatively modest when compared to monthly growth figures for the past 11 months. Gasoline demand growth was supported by the Lunar New Year holidays, which resulted in additional driving as well as increased car sales. In January, passenger cars provided good momentum to drive overall growth, with sales of passenger cars increasing to above 2 million units, more than 10% higher compared to the same period of last year, according to statistics and analysis of China Association of Automobile Manufacturers (CAAM). Sales of both types of vehicles, SUV and MPV, increased during the month by more than 51% and 17% y-o-y, respectively. Gasoline demand, in absolute terms, reached 2.32 mb/d in January 2015.

Furthermore, LPG demand grew by more than 0.11 mb/d or 12% y-o-y, which could be attributed to the country’s growing petrochemical sector, while preliminary data for gasoil showed a slowdown in consumption with a decline in growth of around 20 tb/d, mainly as the Lunar New Year holidays deferred operations in different sectors such as the mining and construction sectors. Consumption of fuel oil was largely waning as initial data seemed to suggest a decrease in growth of around 0.1 mb/d y-o-y. Weakened industrial activity and reduced teapot refinery margins seem to be the largest contributors to this slowdown.

The 2015 outlook is currently balanced in terms of potential and risks. The downside risks are focused on a possible easing in economic conditions in addition to policies supporting a reduction in transportation fuel consumption. On the other hand, the healthy petrochemical sector and expansion projects in the refinery sectors provide upside potential for China’s oil demand growth.

For 2014, Chinese oil demand is anticipated to grow by 0.40 mb/d, while oil demand in 2015 is projected to increase by 0.31 mb/d.

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