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World Oil Demand - Sep 09

Source: OPEC_RP090906 9/15/2009, Location: Europe

World oil demand in 2009
The US is playing a significant role in world oil demand, showing a comeback and reducing the contraction from 0.7 mb/d in July to almost flat in August. This is due to improved economic activity, summer driving consumption and the low base in the same month of 2008. An increase in industrial production greatly reduced the deficit in industrial fuel consumption. Furthermore, oil demand was strong in most of the non- OECD regions especially China, India and the Middle East. Given the major changes in US oil consumption, OECD oil demand is forecast to decline by only 0.9 mb/d in August, up from minus 1.8 mb/d in July. This massive change in OECD oil demand reduced the total world oil demand contraction to only 0.2 mb/d in August. This is the best performance for oil demand since the decline began in early 2008.

Non-OECD oil demand is forecast to inch up by 0.7 mb/d in August, leading to a total world decline of 1.6 mb/d averaging 84.1 mb/d in 2009.

OECD – North America
US oil demand not only maintained the semi-strength seen in July, but also managed to climb to an almost flat level. US August weekly oil demand data revealed that the country’s total consumption is almost the same as last year. It is the first time that US oil demand achieved such a level in the past 25 months due to higher consumption of industrial fuel due to improved economic activity. The US oil demand contraction bottomed out last May and since then the country has been increasing its y-o-y consumption of oil. It is anticipated that US oil demand in the third and fourth quarters will erase most of its contraction to a nearly flat level. However, the total year’s oil demand will be within the range of minus 0.8 mb/d y-o-y.

Mexican oil demand is still suffering from a downturn of economic activity. Not only did the country’s y-o-y July oil demand decline by a strong 6%, but also the average for the first seven months of the year declined by the same rate. Most of the loss came as a result of declining manufacturing activities.

As a result of better-than-expected oil consumption in the US, North America oil demand for the third quarter was revised up by 0.1 mb/d, leading to a forecast total annual decline of 0.9 mb/d y-o-y in 2009 to average 23.2 mb/d.

OECD - Europe
European energy consumption is highly affected by the continent’s crumpled economy. Unlike the US, the European oil demand is not showing any improvement; hence forecast oil demand of minus 0.5 mb/d is valid for the year.

The OECD Europe oil demand contraction in July is relatively the same as was seen in June. French oil demand continued the decline, dipping by 6% in July y-o-y pushing the first seven months of the year to minus 1.4%. As expected, most of the decline resulted from less industrial use of oil. Most of the large economies in Europe followed a similar trend. The strong unemployment in Spain along with other weak economic activity caused the country’s oil demand to decline by 5% in the first half of the year.

Given this dim picture for the European economy, OECD Europe oil demand is forecast to decline by 3% or 0.46 mb/d y-o-y to average 14.9 mb/d in 2009.

OECD - Pacific
Contrary to most of the OECD countries, South Korea’s oil demand is showing positive y-o-y growth so far this year. Despite negative GDP, South Korea’s oil demand is forecast to achieve minor growth in 2009. On the other hand, the largest oil consuming OECD country in the Pacific is suffering from the economic downturn leading to a devastating oil demand contraction so far in the year. Oil demand in Japan declined by 12.7% in July. All of the decline was in industrial fuel; however, growth in transport fuel did not offset the massive decline in the country’s other fuel usage.

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
As was seen in June, Indian oil demand performed strongly in July. This growth resulted not only from the beginning of the agricultural season but also from better economic activities. India’s oil demand grew by 4.5% in July y-o-y leading to almost 5% growth in the first seven months of the year. Although year-to-date oil usage grew by a half a percentage higher than our initial forecast, the coming months should level out, leading to an overall growth of 4.6% in 2009.

Strong growth in India of 16% for new passenger car sales in June led to a steep hike in July gasoline consumption, exceeding 10% y-o-y. Not only has transport fuel shown massive growth, but industrial fuel as well. Improved economic performance caused industrial production to inch up. There are some other factors that affected the strong oil consumption in June and July such as the excessive heat during the summer and less rain for agriculture.

For the first time since the beginning of the year, Thailand consumed more oil y-o-y. Transport fuel (gasoline and diesel) consumption caused the country’s oil demand to grow by 2.1% in June.

The Middle East kept its oil demand on the positive side this year, not only because of the region’s massive energy-intensive projects, but also because of subsidized transportation fuel. However, due to the global economic turmoil, Middle East oil demand is estimated to show growth of around 3% or 0.2 mb/d y-o-y in 2009, which is almost half of what was seen in the previous year.

Argentina’s oil demand not only stopped the continuous decline but also turned positive achieving y-o-y growth of 3.8% in June adding 22 tb/d. Brazil, the largest oil consuming country in Latin America, used 1.8% more oil in June. Although Brazil caused the region’s total oil demand to dip into the red in the second quarter, the third and fourth quarters are expected to show moderate growth leading to total y-o-y growth of 0.3% in 2009.

Oil demand in the Developing Countries is suffering from the current downturn in economic activities; hence oil demand growth is forecast at 0.3 mb/d y-o-y in 2009 to average 25.5 mb/d.

Other regions
Chinese oil imports scored strong growth exceeding 1.0 mb/d y-o-y in July. Of course not all the oil imports were consumed as a large portion went to the country’s strategic storage. Despite the country’s hike in domestic retail prices and preparations for the Olympics which raised China’s apparent oil demand in the same month last year, China oil demand grew sharply in July adding 0.3 mb/d y-o-y. An estimated 0.2 mb/d of oil was used to top the country’s strategic storage in July. Growth in oil demand in the second half of the year is expected to more than offset the sharp decline that was seen in the first quarter. China’s oil demand is forecast to grow by 0.1 mb/d to average 8.1 mb/d in 2009.

World oil demand in 2010
In anticipation of a slow economic recovery next year, world oil demand growth is expected at 500 tb/d. As seen in recent years, most of the growth will take place in 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 some moderate fuel usage growth, primarily in the developing world. The main factors, besides the world economy, that might play an important role in next year’s oil demand are oil prices, taxes and the removal of price subsidies.

Expected economic recovery in the US is causing North America’s oil demand to switch from negative to positive, adding 0.2 mb/d in 2010. However, the other OECD regions are projected to stay in the red for the whole year. OECD oil demand is forecast contract by 0.3 mb/d in 2010. Oil demand growth in the Middle East and India is estimated at a combined 0.3 mb/d for 2010. China, on the other hand, is expected to increase its oil demand growth by 0.3 mb/d.

World oil demand is projected to stop the decline and incur growth of 0.5 mb/d y-o-y to average 84.6 mb/d in 2010.

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