World Oil Demand in 2006
World oil demand estimate for last year remained unchanged from the previous month. As a result of fuel switching to natural gas, fuel oil declined mainly in the OECD countries, causing total world oil demand growth to weaken. Hence, total y-o-y world oil demand growth for 2006 was estimated at 0.8 mb/d or 1.0%, unchanged from our last MOMR. Last year’s oil demand growth was solely due to incremental demand from the Developing Countries. China and the Middle East were the main contributors to world oil demand in 2006.
Warm weather across North America was the main reason behind last year’s sluggish oil demand. Due to fuel switching among power plants, the US fourth-quarteroil demand declined by 0.2 mb/d y-o-y. As a result, 2006 oil demand growth in North America is estimated to decline by 0.25 mb/dy-o-y. Oil demand in OECDin 2006 is estimated todecline by 0.5 mb/d y-o-y.
China, the Middle East, and India were the main contributors to 2006 oil demand growth. Non-OECD oil demand growth was estimated at 1,3 mb/d y-o-y to average 34.98 mb/d in 2006.
Forecast for 2007 demand
World oil demand growth in March was not as strong as in the previous month, although oil demand picked up worldwide due to the normal winter in North America and strong economic activities in the Middle East. World oil demand growth for 2007 is forecast at 1.3 mb/d or1.5%, with no major changes from the last MOMR estimate.
OECD – North America
Although recent cold weather in North America has stopped the monthly decline in Mexico’s oil demand, Mexico’s oil demand in February grew by only 24,000 b/d or 1.4% y-o-y to average 1.8 mb/d, which was 22,000 b/d lower than in the previous month. Low consumption as a result of fuel switching caused fuel oil to decline by 14.3% y-o-y in February. However, gasoline and jet fuel consumption climbed by 5.4% and 11.1% y-o-y in February.
The cold winter pushed Canadian fuel oil demand up by 15.9% as low fuel substitution took place in February. The product that increased the most was aviation fuel, which grew by 18.8% y-o-y in February. Canada’s oil demand in February grew by 0.1 mb/d or 6.4% y-o-y to average 1.8 mb/d.
The cold winter in the USA is still pushing for more oil consumption. According to the EIA Weekly, US demand growth for March was not as strong as in February as a result of declining fuel oil consumption. Oil demand in the USA grew by only 0.28 mb/d y-o-y in March. Motor gasoline grew by an expected 1.5% in March y-o-y, or half of the growth in February. Fuel oil, vital to oil demand, declined by 0.1 mb/d in March y-o-y. As a result of the cold winter, firstquarter oil demand for North America was revised up 0.4 mb/d to average 25.83 mb/d, representing y-o-y growth of 0.7 mb/d.
As a result of the warm winter in other OECD regions, total OECD countries first-quarter y-o-y oil demand growth was revised down by 0.3 mb/d to average 50.05 mb/d representing a decline of only 0.15 mb/d.
OECD – Europe
Europe’s mild winter has greatly affected oil demand. Germany’s inland oil product deliveries declined by 0.25 mb/d y-o-y in February. In addition to the low transport fuel demand, the warm winter in Europe negatively impacted the oil demand. OECD Europe oil demand is likely to decline more than expected and has therefore been revised down by 0.3 mb/d to show a y-oy decline of 0.4 mb/d in the first quarter of 2007.
OECD – Pacific
Unlike January’s low oil demand in South Korea, which increased by a minor 62,000 b/d, February’s oil product demand increased by 5.5% y-o-y. This recent increase was not attributed to winter demand but to the petrochemical industry. However, warmer-than-usual winter has curbed oil consumption in the Pacific region. Despite the increase in oil demand in South Korea, total oil imports in February were down a little over 7% y-o-y. Although the demand for major oil products is expected to decline in 2007, total oil demand is expected to show a minor growth exceeding 1% which can be attributed to the higher demand for naphtha in the petrochemical industry in South Korea. Affected by a warm winter in Japan, February oil imports fell by 12.1%.y-o-y. Japanese domestic oil product sales declined by 0.3 mb/d in February y-o-y to average 3.9 mb/d. The sales of kerosene — the product widely used for heating — declined the most by 10% in February. Evidently the warm weather helped transportation fuel sales in February because Japanese gasoline and jet fuel consumption grew by 2.5% and 7.9% y-o-y in that month.
The Pacific Region has experienced a warmer than average winter, leading to a downward revision of 0.4 mb/d to OECD Pacific consumption, representing a y-o-y decline of 0.4 mb/din the first quarter.
As part of a new US effort to subsidize and develop the alternative fuel industry, the US military has announced that it will adopt new fuel specifications for fighter airplanes based on alternative fuel. The US Air Force would guarantee the purchase of a massive quantity of alternative fuel which in the end will aid in the development of this new industry. Furthermore, the US is pushing the biofuel industry to develop cellulosic ethanol (ethanol produced from non-food crops) via substantial subsidies. As the price of corn doubled last year, it put pressure on the biofuel industry which mainly uses corn.
China is gearing up the development of alternative fuel. The country is planning to invest around $13 billion to build the largest Coal-To-Liquid plant (CTL) in Asia. The output will be used in the chemical industry and will be capable of liquefying five million tonnes annually. This endeavour is part of China’s ambitious plan to develop alternative energy. Furthermore, China is working on new regulations to encourage the production and usage of new types of vehicles that operate on environmentally friendly energy such as electricity and solar. China announced that by 2007 it will commission its first CTL plants, which will be capable of producing 1 million tonnes of oil. By 2010 the plant’s second phase will increase the production capacity to up to 6 milliontonnes of oil.
Biodiesel is receiving enormous support from governments around the world not only in the USA but also in the Asia-Pacific region. Biodiesel demand is estimated at 25,000 b/d in the Asia- Pacific region in 2007. However, the production of this form of biofuel is not only extremely costly but is also more harmful to the environment more than claimed. Biodiesel sales cost around $1/litre more than normal diesel with oil prices of $70/b.
Rainy weather disrupted transportation activities in Northern India, causing the demand for diesel to weaken in February. Indian diesel demand grew by a mere 9,000 b/d in February y-o-y. This weak demand for diesel reduced total oil demand growth sharply. India’s oil demand grew by only 82,000 b/d or 2.9% in February, as apposed to 7.54% in January y-o-y. In the first two months of the year, India’s oil demand grew by 139,000 b/d or 5.13% y-o-y to average 2.86 mb/d.
As expected, Middle Eastern petrochemical and transportation activities are causing oil demand to grow strongly. Middle Eastern 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 0.5 mb/d y-o-y in the first quarter.
Unlike in the previous month, in February, Chinese refiners did not cut kerosene production due to higher demand for kerosene. February kerosene production grew by 14.8% y-o-y. Apparent oil demand in China in January was strong as a result of pre-holiday preparations. However, in February oil imports grew by 5.91% y-o-y pushing apparent demand growth up by a mere 0.2 mb/d or 2.8%. In the first two months of the year, China’s apparent demand grew by 0.28 mb/d or 3.8% y-o-y. Economic indicators are pushing for more energy, with new car sales strong and the industrial output more robust than expected.
One effort in China is to enhance air quality by cutting down on coal burning and replacing it with LPG. China’s consumption of LPG in January grew by 15% y-o-y. The Chinese government recently re-emphasized its efforts to meet the preset goal to curb the use of energy per unit of GDP by 20% by the end of the decade. To achieve such a goal, several means have been announced by the government such as restructuring the pricing system, applying extra charges for emissions, introducing new taxation methods, and encouraging the use of energy efficient equipment. Furthermore, China set a difficult target to limit its energy consumptions growth to 4% annually by the end of the decade and decrease the usage of the most polluting form of energy, coal, from the current level of 66% and replace it with cleaner alternative energy