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World Oil Demand - September 2016

Source: OPEC_RP160906 9/12/2016, Location: Europe

World oil demand growth in 2016 was revised slightly higher by around 10 tb/d from the August MOMR, primarily as a result of better-than-expected performances by OECD Europe and Asia Pacific in 1H16. Hence, world oil demand growth is now pegged at 1.23 mb/d, with total global consumption at 94.27 mb/d.

In 2017, world oil demand growth was kept relatively unchanged from the August MOMR at 1.15 mb/d, with total global consumption forecast at around 95.42 mb/d.

OECD Americas
The latest available monthly data implies solid US oil demand growth for June 2016, with y-o-y gains of about 0.27 mb/d, or 1.3%.

To an overwhelming extent, the growth share in June 2016 oil requirements can be attributed to gasoline, which continued to be supported by the low fuel price environment, and, in consequence, the bullish improvement in the sales of Sport Utility Vehicles (SUVs) and cross-over vehicles, as well as the high level of mileage traveled. The latter grew robustly by approximately 2.1% during 1H16, compared with the same period in 2015. Healthy gasoline demand is projected to remain the main driver behind US oil demand growth for the remainder of 2016 and 2017, in line with an expanding US vehicle market, particularly for larger vehicles. Consistent with a slightly growing economy and expanding aviation activities, steep increases were also observed in jet/kerosene demand. Coming out of a very low historical baseline level, residual fuel oil requirements increased sharply, while propane/propylene demand was down for another month, y-o-y.

US oil demand in 1H16 averages higher by around 0.2 mb/d compared with the same period the previous year. The main characteristics in the first six months of 2016 were growing gasoline, jet/kerosene and fuel oil demand, while diesel requirements decreased. July 2016 figures, which are based on preliminary weekly data, show an increase of around 2.5% y-o-y, with gasoline and jet/kerosene requirements rising, but being partly offset by disappointing diesel demand. August 2016 preliminary data indicates another solid month in US oil demand for the main products, with gasoline and jet/kerosene being the leading products in the main month of the summer holiday season. As a result of these factors, US oil demand is projected to remain strong throughout the remainder of 2016, with transportation fuels dominating the implied growth share.

The US is projected to remain the main contributor to anticipated OECD oil demand growth during 2017.

In Mexico, July 2016 was marked by strongly decreasing oil demand, particularly affecting LPG, residual fuel oil and diesel, being only slightly offset by increasing jet/kerosene requirements. Consequently, Mexican oil demand in July 2016 dropped by a huge 10.4% y-o-y. 2016 oil demand growth is expected to remain in the negative y-o-y, while in 2017, it is projected to grow slightly, as a result of expected positive economic growth.

Canadian oil requirements fell y-o-y in June 2016, with all the main product categories, except naphtha and gasoline, being on the decline. The overall 2016 forecast for Canadian oil demand remained at the level of the previous month, leaving oil requirements slightly declining compared with 2015. Depending on the development of the overall economy, 2017 Canadian oil requirements are projected to slightly exceed those of 2016.

In 2016, OECD Americas oil demand is projected to grow by 0.26 mb/d compared with the previous year. For next year, it is forecast to increase by 0.20 mb/d.

OECD Europe
European oil demand continued to increase during 1H16. In relation to recent historical patterns, the rise was substantial, particularly during 2Q16, which also involved the impact of cold weather and some positive oil price-related effects. Undoubtedly, continuing economic concerns in some parts of the region continue to pose some uncertainty. Nevertheless, the expected oil demand in the region for 2016 and 2017 is being largely dominated by positive factors, which, in the first instance, concern road transportation fuels, similar to the US.

Data for the first seven months of 2016, including some preliminary information for July, showed a solidly increasing European Big 4 oil demand, with a rise of approximately 1.6% y-o-y, with road transportation fuels, notably diesel, accounting for the bulk of the increases. These developments are supported by the positive momentum in auto sales and the solid expansions in all major auto markets. The general expectations for the region’s oil demand during 2016 and 2017 have certainly improved since last month’s projections, but they are still coupled with uncertainties that depend on the region’s economic developments. Moreover, high taxation polices related to oil consumption and fuel substitution still remain the main factors that could curb oil demand despite expectations of modest economic growth, while the low historical baseline and the low fuel price environment are the principal positive ones.

OECD Europe oil demand is projected to grow by 0.10 mb/d in 2016 for the second consecutive year. Oil demand in 2017 will slightly decline compared with 2016.

OECD Asia Pacific
Japanese oil demand contracted by 0.11 mb/d in July 2016, which translates into a 3.0% decrease y-o-y, while total consumption reached 3.33 mb/d. Growth among the products was mixed, with diesel oil and fuel oil seeing some gains, while oil requirements in other product categories, particularly naphtha, gasoline, jet/kerosene and crude for direct burning, declined y-o-y.

Japanese direct oil usage is most likely expected to decline further in the remaining part of 2016, as a result of fuel substitution with natural gas and coal. Less promising are also August 2016 new auto sales, which show a minor y-o-y decrease. The outlook for overall 2016 Japanese oil demand remains low, with the risks being once more skewed towards the downside.

Cumulatively, with data up to July, Japanese oil demand shrunk by a substantial 0.18 mb/d, or around 4.7%, y-o-y with all products being in negative territory except jet/kerosene. The high level of substitution has impacted the consumption of direct crude burning and fuel oil negatively, both dropping by 44.9% and 11.2% y-o-y, respectively.

Oil demand projections for 2017 assume a higher likelihood that a number of additional nuclear plants will re-join operations.

In South Korea, June 2016 came up bullish, increasing by approximately 6.2% y-o-y. Gains in the petrochemical industry, which called for increasing LPG requirements as well as diesel, gasoline and residual fuel oil, were partly offset by slightly shrinking requirements for naphtha. The outlook for South Korean oil demand during 2016 and 2017 remained healthy, unchanged compared with last month’s projections. OECD Asia Pacific oil consumption growth is projected to fall by 0.06 mb/d in 2016. For 2017, growth is expected to decline further by 0.08 mb/d y-o-y.

Other Asia
India’s oil demand continued to increase, albeit at a slower pace than in previous months. The month of July registered an increase of around 0.15 mb/d, or 3.9%, y-o-y, with total product demand slightly below the 4 mb/d mark for the first time in 2016.

Product performances continue to impress, especially gasoline and fuel oil, which both increased by more than 50 tb/d, or 12% and 20%, respectively. The increase in gasoline demand growth is largely attributed to the continuous increase in domestic passenger car sales, which grew by around 10% y-o-y in July, the fastest rate of growth in seven months. SUV sales in July were also higher by more than 42% y-o-y. Growth in two-wheeler sales was around 14% y-o-y. The increase in fuel oil consumption growth can be linked to the manufacturing sector as steel and petrochemicals recorded increases in their fuel oil demand. Additionally, the manufacturing Purchasing Managers’ Index (PMI) registered 51.8 points, which is above the threshold of 50 that separates expansion from contraction.

LPG grew firmly, adding some 48 tb/d, or 8.7%, y-o-y, with total consumption at around 0.6 mb/d. Demand continues to be supported by the residential sector as LPG is the main energy source for cooking, followed by commercial LPG in the transportation sector, which grew due to its economic advantage over other transportation fuels.

Diesel oil demand recorded the lowest growth levels in 2016 during the month of July when the product registered an increase of about 28 tb/d, or 2%, y-o-y and total consumption reached 1.51 mb/d. Heavy rains during the monsoon season resulted in less activity in the agriculture sector as demand for power generators decreased. Construction activities were also reduced, capping diesel oil requirements, in addition to a decline in transportation of goods between different states due to floods.

In Indonesia, the latest June 2016 data shows yet another increase of around 1% y-o-y. Additionally, y-t-d, with data up to June, a rise of 24 tb/d, or 1.6%, y-o-y indicates firm demand growth in the country. In June, products showed mixed performances, as transportation fuels (gasoline, jet/kerosene and diesel oil) increased and LPG, fuel oil and the “other products” category declined.

In Thailand, oil demand in June 2016 was also in positive territory with growth of around 2% y-o-y, led by petrochemical feedstocks and transportation fuels.

The picture for 2017 remains as highlighted in the previous month’s report with a major assumption of better economic conditions than in 2016. India is anticipated to be the major contributor to growth in the Other Asia category. Middle distillates, followed by gasoline, are the leading products for oil demand growth in 2017.

Other Asia’s oil demand is anticipated to grow by 0.49 mb/d y-o-y in 2016, while in 2017, it is projected to rise by 0.37 mb/d.

Latin America
In July 2016, product demand eased further in Brazil, shedding more than 0.15 mb/d, or 6.2%, y-o-y, largely a reflection of the weak economic situation in the country. Cumulatively, with data up to July, oil demand shrank by around 0.13 mb/d, or 5.2%, y-o-y.

In July, all products showed declines, with the exception of gasoline. Gasoline requirements inched up by a mere 4 tb/d, or 0.6%, y-o-y, leading to total demand of 0.70 mb/d. The increase in gasoline consumption was at the expense of ethanol, which shed around 48 tb/d, or 15.3%, y-o-y. As previously reported, this is a price-related phenomenon as lower gasoline prices promote additional demand.

Diesel oil demand fell by 54 tb/d, or more than 5.4%, y-o-y, with total consumption below 1.0 mb/d as major macroeconomic indicators of the country showed continued declines. The PMI remained below the 50 point threshold and registered around 46 points, however, it increased from the level of 43 recorded in June.

On the positive side, the consumer confidence index improved during the month of July for the third successive month and recoded 76.7, up from 71.9 in June. Moreover, the Olympic Games are expected to lend some support to transportation and power generation fuels in August. Fuel oil demand also weakened in July as data showed a reduction of 32 tb/d, y-o-y, as fuel oil substitution with hydro and wind in the power generation sector continued to take place.

In Argentina, the latest available data for the month of June 2016 showed flat development in oil demand growth data. While transportation fuels recorded some gains led by jet/kerosene, those gains were counterbalanced by declines in petrochemical feedstocks and power generation fuels, namely LPG and fuel oil.

In 2017, projections for oil demand growth in Latin America are similar to last month’s projections, accounting for general improvement in the overall economy of the regions. Brazil is projected to be the main contributor to growth, with transportation fuels leading the way.

Latin American oil demand is expected to decrease by 0.06 mb/d in 2016, while in 2017, it is forecast to rise by around 0.07 mb/d.

Middle East
In Saudi Arabia, despite increasing transportation fuel requirements, total product consumption declined in July for the fourth consecutive month. Oil demand contracted by 87 tb/d, with total product consumption at 2.66 mb/d.

Oil demand in Saudi Arabia follows a certain pattern, which tends to push oil demand higher in the summer due to additional air conditioning usage, however, the substitution with natural gas, particularly after the commencement of the Wasit gas plant, caused direct crude for burning to drop sharply by more than 0.15 mb/d, or about 17.8%, y-o-y, pressuring the overall consumption figures of the country. Total demand of direct crude for the purpose of burning was at 0.70 mb/d in July.

Transportation fuels, gasoline and jet/kerosene, registered positive growth as both products tend to increase during the summer season, which also coincided with end of the holy month of Ramadan and the Eid Al-Fitr holidays. Gasoline gained 6.4% over July 2015, while jet/kerosene remained broadly flat. On a cumulative basis, with data up to July, gasoline grew by around 15 tb/d, or 2.7%, y-o-y, slower than the rate of growth experienced in the same period in 2015, when gasoline added more than 6.0% y-o-y. This slowdown in gasoline demand growth momentum could be attributed to a reduction of subsidies, however, more information will need to be gathered to arrive at a more accurate and meaningful reading of data.

During the month of July 2016, diesel oil dropped by 14 tb/d, or around 1.8%, y-o-y, as construction activities and other outdoor work were reduced due to the end of the Ramadan holidays and high temperatures. Fuel oil increased by more than 90 tb/d, or 23%, y-o-y, primarily to meet additional power generation demand.

In Iraq, oil demand growth moved into negative territory in July, shedding around 16 tb/d from the levels seen in July 2015. Total product demand is now at around 0.67 mb/d, the highest total consumption level in 2016 as consumption for power generation fuels rose during the summer. The product categories had mixed performances with demand for fuel oil increasing, while diesel oil and the “other product” categories lost ground, dragging the overall consumption lower.

In 2017, oil demand growth is foreseen to rise over the levels see this year as economic momentum gains pace. Saudi Arabia is expected to be the oil demand growth driver in the region with transportation fuels and petrochemical feedstocks projected to be contributing to product growth. However, subsidy reductions, substitution towards natural gas and geopolitical concerns are expected to weigh on product demand growth in 2017.

For 2016, Middle East oil demand is projected to increase by 70 tb/d. In 2017, demand in the region is anticipated to grow by 0.18 mb/d.

China
Chinese oil demand continued to grow in July, adding around 0.23 mb/d, or around 2%, y-o-y. Total oil demand reached 10.98 mb/d during the month. Y-t-d data indicates average growth at above 0.21 mb/d, representing firm growth supported by increasing demand for LPG as a petrochemical feedstock as well as for gasoline and jet/kerosene as transportation fuels.

In July 2016, oil demand growth increased across all products, with the exception of diesel oil. LPG, jet/kerosene and gasoline led those gains, rising by more than 12.5%, 5.9% and 4.4% y-o-y, respectively. Diesel oil consumption declined by around 0.11 mb/d, or 3.1%, y-o-y to average around 3.37 mb/d, as a result of the slower pace of growth in industrial and construction activities, due to the slowdown in real estate investment.

On the positive side, LPG demand hit total consumption levels of around 1.48 mb/d as expansions and ramping up of production in petrochemical units continued to provide support to growth.

Jet/kerosene total consumption is now set at 0.71 mb/d, an increase of 0.23 tb/d and the third-highest recorded level of consumption. This increase was a result of the summer holiday travelling season. Gasoline demand also increased by around 0.10 mb/d y-o-y as vehicle sales continued to rise. According to statistics and analysis of the China Association of Automobile Manufacturers (CAAM), in July, sales of passenger cars witnessed an increase y-o-y, rising to 1.85 million units, an increase of 23%. On a cumulative basis, with data up to July, sales of passenger cars reached 14.68 million units, up by 9.8% from the same period in 2015.

For 2017, projections for oil demand development in China are unchanged from last month’s report and are based on demand for transportation and industrial fuels rising next year, slightly lower GDP growth, at 6.1% compared with 2016, a continuation of the fuel quality programmes targeting fewer emissions and a continuation of fuel substitution with natural gas and coal.

For 2016, China’s oil demand is projected to rise by around 0.28 mb/d, while in 2017, it is forecast to reach, more or less, similar levels as in 2016, at 0.27 mb/d.

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