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World Oil Demand - Nov 08

Source: OPEC_RP081107 11/17/2008, Location: Europe

World oil demand in 2009
Oil demand growth will be boosted mainly by non-OECD countries, particularly the Middle East, Asia, and China. Deteriorating economies in OECD countries are estimated to yield in declining oil demand which is forecast to pull total world oil demand growth down to less than 0.6 mb/d in 2009. Hence, world oil demand in 2009 was revised down by 0.3 mb/d to show growth of 0.5 mb/d y-o-y.

World oil demand in 2008
Economic turmoil continues to undermine oil demand growth, especially in the OECD counties. Led by losses in the US, OECD oil demand showed a major drop of 1.7 mb/d y-o-y in October. Non-OECD oil demand growth stood at 1.2 mb/d, resulting in a decline of total world oil demand of around 0.5 mb/d. .

Weather and the fall in prices might to a certain degree help fourth-quarter oil demand but demand is not expected to overcome the major decline resulting from the economic downturn. Vehicle sales reported a 30% decline in October. Given the world economic turmoil, fourth-quarter oil demand is forecast to show minor growth of only 0.4 mb/d y-o-y to average 87.4 mb/d. In addition to the strong decline in transport fuel, petrochemical industry oil consumption is showing a strong decline as well. .

Due to the declining oil demand in OECD, world oil demand in 2008 was revised down by 0.26 mb/d and is now expected to grow by 0.29 mb/d to average 86.2 mb/d. Should the weather become warmer, then further downward revisions might be possible.

Alternative Fuels
Low oil prices are putting pressure on the high-cost biofuel industry. Not only has the biofuel industry lived on governmental subsidies but it has pushed food prices higher. In order to ease the pressure on food prices, some European countries are banning certain food products from the industry feedstock list. Hence, Germany altered its mandate of biodiesel blend, which was set to reach 6.25% next year. Furthermore, the country is planning to increase taxes on biodiesel in the near future. This move is not limited to Germany only; it is spreading to other European countries such as the UK.

OECD North America
The turmoil in the US economy has not only led to higher unemployment and tightening credit, but also a decline in oil demand of more than 1.0 mb/d year-to-date. Furthermore, gasoline declined by 3.1%, while kerosene jet fuel fell by 5.3% as a result of the slowing aviation industry. US oil demand is expected to decline by 1.05 mb/d in 2008. High oil prices affected US oil demands in the first half of this year; however, in the second half, the deteriorating economy is the main reason behind the drastic slide in oil demand. The anticipated upcoming cold winter would support heating and fuel consumption. However, the expected slowdown in transport and industrial fuel use resulting from the current economic situation will more than offset demand growth for winter products.

Similar to last month, Mexican gasoline demand grew adding 55 tb/d y-o-y to the country’s total oil demand in September. During the summer, Mexico’s transport fuel demand was not affected by high oil prices as in the US but jumped by 5.2% year-to-date. Hence, in the first three quarters, Mexico’s oil demand was pushed up by transport fuel to show growth of 2% to average 1.85 mb/d.

In contrast, oil demand in Canada was dragged down by the 0.7% y-o-y decline in gasoline consumption in the first three quarters. Given the effect of the winter, Canadian oil demand is not expected to show a decline but will end up the year flat. Hence, as a result of declining US oil demand, North America’s oil demand growth was revised down by another 0.2 mb/d in 2008 to show a total decline of 1.0 mb/d y-o-y in 2008.

OECD Europe
Without any doubt, the world financial crisis has affected Europe, resulting in considerable decline in oil demand. German consumption, the largest in Europe, was boosted by diesel usage, which grew by 11% in the first three quarters of this year. Diesel demand is increasing as most of vehicles sold within Europe operate on diesel instead of gasoline. This move has cut into gasoline consumption, which is down 5.6% over the same period. Although the industrial use of LPG is heading higher, fuel oil usage declined by 8.3% y-o-y in the first three quarters. The behaviour of German oil demand does not apply to the other “Big Four”. The UK petroleum product inland consumption declined by almost 1% in the first three quarters of this year. The major loss came from gasoline usage, which dipped by 6.1%. Italy showed the same consumption pattern where gasoline demand declined by 8% in three quarters leading to a total decline in the country’s oil usage of 2.8%. Although winter might require more oil consumption in the fourth quarter, OECD Europe oil demand in the whole year is forecast to decline by 0.04 mb/d y-o-y to average 15.3 mb/d.

OECD Pacific
Despite gasoline prices falling to eight-month lows, Japan’s transport fuel consumption continues to show a drastic decline. The slide in oil demand in Japan is a result of the economic slowdown in the Pacific. Japan’s domestic petroleum product sales plunged by 13% or 0.5 mb/d y-o-y in September. The main drop was in transport and industrial fuel. This trend of Japan’s oil demand applied to all of the OECD Pacific. The region’s oil demand forecast was revised down by 0.06 to show a total decline of 120 tb/d in 2008.

Developing Countries
The stable economy kept oil demand in India healthy as expected. Strong usage of diesel by transport and industrial sectors added another 150 tb/d y-o-y to total oil use in September. Gasoline showed strong growth as well, reaching 22 tb/d to average 251 tb/d y-o-y in September. Total oil demand growth in September reached 0.2 mb/d y-o-y to average 2.87 mb/d. In the first three quarters, India’s oil demand grew by 5.3% or 144 tb/d y-o-y to average 2.88 mb/d. It is anticipated that growth will be within the forecast range of 145 tb/d y-o-y in 2008.

The easing in crude prices relieved some Asian countries from high costs of fuel subsidy bills. Some countries are considering completely abolishing subsidy on certain products and keeping it on products that are widely used for cooking within Asia such as kerosene. Other Asia oil demand will stay healthy as expected to achieve growth of 0.23 mb/d to average 9.35 mb/d.

As a result of the strong oil demand in Other Asia, Latin America, the Middle East and Africa, Developing Countries oil demand growth is forecast to reach 0.9 mb/d in 2008 y-o-y to average 25 mb/d.

Latin America’s oil demand is on the rise. Oil demand in Brazil, Venezuela and Argentina is showing healthy growth as expected. Economic activities along with controlled prices were the factors behind this strong appetite for energy. Latin America’s oil demand growth is forecast to reach 0.23 mb/d y-o-y in 2008 to average 5.7 mb/d.

Other Regions
A few factors affected China’s oil demand in the third quarter, such as the halt in economic activities during the summer Olympics, traffic restrictions, a 5% decline in power generation growth from 16%, and the usage of the country’s strategic reserve. Hence, China’s apparent oil demand growth was revised down by 100 tb/d. China’s oil demand growth is forecast at 0.42 mb/d y-o-y to average 8 mb/d.

During the month of September, Russia’s apparent oil demand inched up by around 5% y-o-y. This strong growth was supported by an active economy within the region. Hence, FSU’s oil Demand growth was revised up by 0.13 mb/d y-o-y in the third quarter. For the whole year of 2008, FSU’s oil demand growth is forecast to reach 0.15 mb/d y-o-y to average 4.1 mb/d.

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