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World Oil Demand - Aug 09

Source: OPEC_RP090807 8/11/2009, Location: Europe

World oil demand in 2009
Although the US oil demand is still showing a massive reduction, increases elsewhere in the world have helped to partially offset the decline, leading to no change in world oil demand growth. Chinese June oil demand has picked up after a devastating contraction in the first quarter. Furthermore, India’s oil demand grew by more than 13.6% in June yo- y versus 0.6% last May. OECD oil demand is forecast to decline by 1.9 mb/d, while non-OECD oil demand is forecast to inch up by 0.2 mb/d, resulting in total world decline of 1.6 mb/d in 2009. Although the first half of the year showed a plunge of 2.7 mb/d in total world oil demand, the second half is forecast to decline by only 0.6 mb/d.

OECD – North America
US oil demand has maintained the relative strength seen in June. For the second consecutive month, US gasoline consumption not only stopped its decline, but also climbed up a bit to show growth of 0.6% in July y-o-y. Summer driving has not only halted the decline but also contributed to a more positive demand number. Of course, this latest growth is much weaker than the normal trend of 1%.

Recent achievement in the auto industry has been greater in comparison to the past 12 months. USA oil demand stopped its previous declining pattern and kept the July contraction below 1 mb/d. July weekly data showed a decline of only 3.9% or 0.77 mb/d y-o-y. Not only has summer gasoline shown better performance but also industrial products have reduced their steep decline to some degree. The first seven months of the year still experienced a decline of 1.25 mb/d with a negative performance for all products. Total US oil demand for the year is forecast to decline by 0.9 mb/d.

The US has been receptive to energy efficiency programmes and one popular programme is the “Cash for Clunkers”. This programme quickly drained its $1 billion fund and the government allocated extra funds amounting to another $2 billion. Critics of this programme state that most of the sales that occur under this programme are nothing but a delay in normal purchases which people would have made anyway. Others accuse the programme of not necessarily being as green as it claims. This programme is not expected to dent the country’s total gasoline demand in the short term.

Following a strong decline last May of 0.24 mb/d, due not only to the slow economy but also from the swine flu epidemic that hit the country badly last spring, Mexican June oil demand cut its decline by half. Considering that summer gasoline inched up by 3.5% or 28 tb/d, total Mexican oil product demand declined by 0.1 mb/d in June. Fuel oil and jet fuel decreased the most, losing 100 tb/d and 17 tb/d. Mexican oil demand is anticipated to show some improvement in the last quarter of the year, leading to a decline of only 81 tb/d y-o-y in 2009.

As in the US, Canadian June oil demand data continued its negative pattern to show a drop in oil usage by 0.06-mb/d y-o-y. Most of this decline was as a result of less fuel use by the industrial sector since the start of the economic crises. Canadian oil consumption is forecast to be almost flat in 2009.

North America oil demand is forecast to decline by 1.0 mb/d y-o-y in 2009 to average 23.2 mb/d.

OECD - Europe
European energy consumption is suffering from the continent’s anemic economy. Despite some improvement, OECD Europe oil demand is still showing a contraction in almost all products, mainly industrial products. June total oil demand is estimated at a negative 0.4 mb/d y-o-y, better than what was seen in May by almost a third.

Germany, the largest oil consuming country in Europe, recently showed energy consumption data indicating that May’s usage of oil products grew by almost 3% following a 0.7% decline in April. The growth was mostly attributed to diesel, which is used not only in transport but also in the industrial and agricultural sectors. This strong growth will push Germany’s second quarter oil demand into the positive column. Despite the 3% decline in France’s GDP this year, the country’s June oil demand showed minor growth of 0.6% after two consecutive months of declining oil consumption.

Given the dim outlook for the European economy, OECD Europe oil demand is forecast to decline by 2.9% or 0.44 mb/d y-o-y in 2009.

OECD - Pacific
South Korean oil demand is forecast to grow by 0.7% or 14 tb/d in 2009 y-o-y. This moderate behavior came as a result of a downturn in economic activity. Given the strong growth in both April and May, the second quarter oil demand is forecast to be up by 60 tb/d y-o-y. The second half of the year might bring better economic activity in the Pacific, which will result in greater, oil demand. Gasoline has experienced 3.5% growth in the first half y-o-y as a result of summer driving, pushing the country’s oil demand up slightly by 1.2% in the first half of the year.

Australian oil demand has been in the negative since the start of the year, but reached a new low in May plunging by more than 4% y-o-y. It is expected that Australia’s oil demand will show some moderate positive performance in the second part of the year, which will be enough to offset the decline in the first half.

Japan managed to cut its oil usage loss by more than half. The country’s June oil demand contracted by only 0.2 mb/d versus 0.5 mb/d the previous month. It is anticipated that Japanese oil consumption will plunge by 0.4 mb/d this year. A few factors, which are affecting the country’s oil demand, are the shrinking economy, aging population and energy efficiency policies within the country.

Given the weak Japanese economy, OECD Pacific oil demand is forecast to decline by 0.4 mb/d in 2009 to average 7.6 mb/d.

Developing Countries
Indian oil demand performed strongly in June as a result of not only better economic activities but also the start of the agricultural season. The country’s oil demand grew by more than 13.6% in June y-o-y versus 0.6% last May. India’s oil demand, which has been performing moderately since the start of the year, picked up pace in June to mark a high for the year. Gasoline consumption alone grew by a record 37.5% adding another 85 tb/d to the country’s oil demand pool. Diesel consumption growth was more than double that of gasoline, reaching 0.2 mb/d in June y-o-y to average 1.2 mb/d. Agricultural and industrial usage were the reasons behind this strong growth. Indian oil demand performed steadily despite the ups and downs in the country’s economic activities. It is anticipated to grow by 4% this year.

While Indonesian oil demand is not anticipated to be in the negative, due to the partial removal of price subsidies and fuel substitution, the country’s oil demand will be almost flat this year.

Unlike most of the world, the Middle East kept its oil demand on the positive side this year not only because of the massive energy intensive projects in the region, but also because of transport fuel subsidies. However, due to global economic turmoil, Middle East oil demand is estimated to show growth of only around 3% or 0.2 mb/d y-o-y in 2009 which is almost half that of the previous year.

Oil demand in the Developing Countries has suffered from the current downturn in economic activities. Hence, Developing Countries’ oil demand growth is forecast at 0.3 mb/d y-o-y in 2009, averaging 25.5 mb/d.

Argentina’s oil demand showed a further decline in May. Data for that month indicated that the country’s total oil demand shrunk by 4.8% yo- y. Given weak gasoline demand, diesel usage declined by almost 17% resulting from reduced manufacturing activities, slow road cargo and low agricultural activities. Argentina, the third largest oil consuming country in Latin America, is expected to use less oil this year by 15 tb/d y-o-y.

All of Latin America’s countries burned less oil except Venezuela, leading to a total negative consumption of 73 tb/d in May y-o-y. Given the bad economic situation this year, the region’s oil demand will grow by a minor 0.3% in 2009.

Other regions
Despite the price increase in petroleum products, Chinese apparent oil demand grew by 2.6% y-o-y in June. Following a steep decline in the first quarter, the government implemented stimulus plans, which kicked in and increased the usage of energy in the second quarter. The latest oil consumption increase was attributed to better economic activities. Industrial oil usage along with transport and agriculture has pushed demand up in the second quarter and is expected to maintain the same trend until the year-end. China’s oil imports grew drastically as well, exceeding 0.4 mb/d to average 4.5 mb/d. As for the retail price of petroleum products, China adopted a new retail pricing mechanism, which allowed the government to change the prices of transport fuel if international oil prices swing by 4% within 22 days. Hence, on 29 July authorities cut transport fuel prices between 3% and 5%.

This new pricing mechanism has led to price changes five times so far this year. Last year, old pricing procedures sheltered Chinese consumers from the negative effects of high oil prices, keeping domestic consumption on the rise. This new method is moderately affecting local consumption and effectively represents the removal of energy subsidies as in other Asian countries. On another front, the Chinese economic stimulus plan that was implemented early this year has pushed new vehicle sales up by 18% in the first six months y-o-y adding more than 6 million vehicles. It is anticipated this number will exceed 10 million vehicles by the end of the year.

Due to poor performance in the first quarter, China’s oil demand is forecast to grow by only 0.1 mb/d y-o-y in 2009 to average 8.05 mb/d.

World oil demand in 2010
Due to the late arrival of the economic recovery next year, oil demand growth is expected to increase by 0.5 mb/d. As in recent years, most of the growth will take place in the non-OECD, mainly China, India, the Middle East and Latin America. The bulk of oil demand will come from the industrial, transport and petrochemical sectors. The agricultural sector will show a moderate increase in fuel usage, mainly in the developing world. Apart from the world economy, the main factors that might play an important role in next year’s oil demand are oil prices, taxes and the removal of price subsidies.

As a result of the expected improved economic performance, US gasoline demand will be back in the growing mode, but will remain the wild card in 2010.

Industrial fuel — mainly diesel and naphtha — will contribute the most growth to world oil demand in 2010. Coming out of a very low base in 2009, gasoline and jet fuel consumption will show small increases due mainly to the growing transport sector in non-OECD countries and the slight rise in consumption in North America and the Pacific.

World oil demand is anticipated to stop its decline and incur growth of 0.5 mb/d y-o-y to average 84.4 mb/d in 2010.

Oil Demand Forecast Scenarios
There are variables affecting the 2010 oil demand forecast which might contribute as much as 0.3 mb/d to oil consumption next year. The situation in the US is the wild card for the coming year. The upper range for world oil demand growth is forecast at 0.8 mb/d, which will reflect strong oil demand growth in the US as a result of a rapid and healthy economic recovery. It is suggested that a quick recovery of the US economy along with a stronger dollar value will lead to cheaper oil.

A healthy US economy will speed up the recovery in other economies as well. Also, a stronger recovery in China might call for an additional 0.1 mb/d of energy. Another important factor that might affect world oil demand is the price of natural gas. Should natural gas prices in 2010 move to the high side, then fuel oil consumption would increase worldwide as a result of reduced fuel switching.

On the other hand, should there be a delay in US economic recovery, this would lead to a downward revision in total world oil demand. The financial turmoil and the crisis in the world economy have affected oil demand in the first half of 2009 and will continue to do so next year as the recovery in the world economy is expected to take place at a slower pace than initially anticipated.

As oil demand in OECD countries is expected to continue to contract, non-OECD countries will contribute 100% of expected oil demand growth. Two of the OECD regions (Europe and Pacific) are forecast to use less oil contracting by 0.5 mb/d; however North America is forecast to halt its oil demand decline and increase by 0.2 mb/d next year.

Reduced transportation along with a weak industrial sector and hence low demand for motor gasoline, diesel and naphtha will be the main factors behind plunging oil demand in both OECD Europe and Pacific. Winter oil demand growth will only partly offset the decline in other products. Furthermore, the decline in OECD Pacific oil demand will be attributed mainly to Japan. Apart from the world economic crisis, higher energy costs and taxes, energy conservation, efficiency, alternative fuels and other factors are the main reasons for the decline in OECD demand. As a result of the anticipated timing of the economic recovery in the US, North America’s oil demand is forecast to increase by only 0.2 mb/d y-o-y in 2010 to average 23.4 mb/d.

Middle East oil demand growth is estimated at 220 tb/d in 2010. Energy intensive projects are keeping the region’s oil demand on the rise. Furthermore, controlled transport fuel retail prices are expected to keep demand healthy as well. Given stable energy consumption within the region, should economic activity pick up pace, then the region’s oil demand growth might be stronger than this forecast.

Like the Middle East, Indian oil demand growth is estimated at 0.1 mb/d for 2010. Although agriculture and transport sectors are expected to be strong in India next year, the partial removal of price subsidies and other governmental policies are downside risks for oil demand growth in 2010.

Chinese oil demand growth in 2010 is estimated to be the highest worldwide. The Asian nation is currently trying to minimize the negative effects of the world economic crisis by introducing several measures to support its economy. The increase in retail fuel prices, biofuel usage and the building of more electric powered inter- and intra-city railroads will to some degree affect consumption of transport fuel next year.

China is also planning to increase the use of nuclear and hydropower plants, which will negatively influence the consumption of coal and oil. It should be noted, however, that other sectors in China, which serve as major energy drivers — such as industrial production, in-land cargo, agriculture, construction, transportation, and fishing — would show stronger growth in 2010 than in 2009. China is trying to achieve its pre-set goal to reduce energy intensity by 5% in 2010 through the implementation of various efficiency agendas. China’s apparent oil demand is forecast to grow by 0.3 mb/d y-o-y in 2010, almost 250 tb/d higher than the estimate for the current year.

Asia is expected to contribute the most to next year’s oil demand growth. However, the removal of price subsidies will to a certain degree reduce the continent’s oil demand. Indonesia is the second highest oil consuming country in the Other Asia region and is planning to reduce its energy subsidies by 3% in 2010. This will lead to an increase in fuel cost of more than 8%. A number of Asian countries are planning various measures to partially remove price subsidies next year.

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