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World Oil Demand - December 2016

Source: OPEC_RP161206 12/14/2016, Location: Europe

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World oil demand growth in 2016 was revised slightly higher by 11 tb/d from the November MOMR, largely to reflect better-than-expected oil consumption in OECD Europe and Asia Pacific. World oil demand growth currently stands at 1.24 mb/d with total global consumption anticipated at 94.41 mb/d. In 2017, projected oil demand growth remained unchanged from last month’s report at 1.15 mb/d, leading to an expected total world oil consumption of 95.56 mb/d.

World Oil Demand for 2016 and 2017
OECD Americas
The latest available monthly US data for September 2016 shows solid oil demand growth compared to the same month in 2015, with all petroleum product categories registering gains, except diesel. Gasoline demand showed additions of 0.20 mb/d, or 2.2%, y-o-y, in line with the low oil price environment and increasing mileage during the same month. Consistent with healthy economic developments and, particularly, growing travel-related activity, requirements for jet fuel increased sharply y-o-y by 0.09 mb/d, or 5.9%. Supported by the petrochemical industry, propane/propylene requirements also rose sharply by 0.13 mb/d, or almost 13%, while fuel oil demand increased by 0.03 mb/d y-o-y.

Overall, improvements have been partly offset by shrinking diesel demand in the road transportation sector and predominantly as a result of lower industrial activities in the energy sector. Preliminary weekly data for October and November 2016 implies a continuation of the trend seen in September 2016, and hence overall y-o-y improvements of approximately 0.68 mb/d and 0.87 mb/d, respectively. Despite the preliminary nature of this data, this highlights continued strong US demand. Available data for eleven months in 2016 – monthly data until September and preliminary weekly data for October and November – shows US oil demand growing solidly by around 0.31 mb/d with gasoline, fuel oil, propane/propylene and jet fuel taking the largest shares in gains compared to the same period in 2015 and being partly offset by declines in the demand for diesel.

The overall risks for US oil demand developments in 2017 can be considered as balanced. Upside potential relates basically to developments in the overall economy and the price environment, while downside risks concern mainly fuel substitution, vehicle efficiencies and the increasing penetration of alternative technologies. Following a sharp drop in 3Q16 and after several falling monthly figures in 1Q16 and 2Q16, Mexican oil demand declined strongly in October 2016 y-o-y, although with a diverse picture as far as the main product categories are concerned. Gasoline and jet fuel demand in the transportation sector grew substantially, but were more than offset by declines in LPG and diesel requirements. The risks for 2017 Mexican oil demand are rather balanced and depend mainly on the development of the overall economy and the degree of fuel substitution in the country’s industrial sector.

Canada’s oil demand dropped y-o-y in September. Losses in LPG and naphtha demand have been only partly offset by increasing gasoline and diesel requirements. In 2017, Canadian oil demand is projected to return to growth, with the risks being balanced.

OECD Americas oil demand in 2016 is expected to grow by 0.20 mb/d. For 2017, OECD Americas oil demand is projected to increase by 0.20 mb/d.

OECD Europe
European oil demand in September continued to be on the positive side for another month, in line with economic developments in the region and the low oil price environment. Low prices supported oil demand mainly in the road transportation sector, despite high taxation across different countries and the increasing penetration of alternative fuel vehicles. Solid oil demand growth was registered in a number of countries in the region, notably the Netherlands, Spain, Sweden and Turkey. Early indications for October 2016, however, imply losses of approximately 0.06 mb/d y-o-y in Germany, France, Italy and the UK, which represent the European Big 4 oil consumers. Germany, Italy and France seemed to decline, while the UK grew. According to provisional figures from the European Automobile Manufacturer’s Association, European auto sales interrupted their positive momentum in October 2016, with a 0.02% decrease y-o-y. Growth was nevertheless eminent in some major auto markets with auto sales growing in Italy, Spain and the UK, while sales in Germany and France were on the decline, y-o-y.

The outlook for the region’s oil demand in 2017 has not changed since last month’s projections and is capped with downside risks that relate mainly to factors affecting the region’s oil demand. These factors include high taxation polices in oil use, particularly for private consumers, in combination with planned incentives for alternatives, fuel substitution, as well as uncertainty about the development of the economy in some countries of the region. Therefore, 2017 oil demand growth expectations are substantially lower than those observed in 2016, as some of the positive effects during the current year will most likely fade away.

OECD Europe oil demand is expected to grow by 0.18 mb/d in 2016, while 2017 oil demand is projected to be roughly at 2016 levels, growing by only 0.01 mb/d.

OECD Asia Pacific
With data up to October 2016, oil demand in Japan has been determined by falling requirements in the direct use of fuel and crude oil for electricity generation, as a result of increasing substitution with natural gas and coal. All of the product mix has declined during this period. LPG, jet kerosene, diesel oil and gasoline declined the least, shedding around 0.8%, 1.7%, 0.9% and 0.6% y-o-y, respectively. This pattern is expected to continue for the remainder of 2016 as substitution levels are projected to persist, affecting demand for fuel oil and direct crude for the purpose of burning. As in the recent years, the petrochemical industry has been the driver for Japanese oil demand growth, minimizing the large declines in total demand. On the other hand, Shikoku Electric Power Company has resumed commercial operations of the 890-megawatt Ikata 3 reactor after completing all regulatory safety checks. The reactor has been generating electricity since August 2016.

The outlook risks for 2017 Japanese oil demand remain skewed to the downside, largely depending on the development of the economy and the degree of fuel substitution. In South Korea, September 2016 came up with strongly increasing oil demand requirements, y-o-y. Demand in all the main petroleum product categories increased, particularly LPG and naphtha within the petrochemical and transportation sectors. Solid gains have also been observed in the demand for gasoline and diesel. Available data for nine months in 2016 implies substantial growth in South Korean oil demand of approximately 0.16 mb/d, or 6.2%, y-o-y and with the bulk of this growth being captured by petroleum products usage in the petrochemical and industrial sectors. As a result, the outlook for South Korean oil demand growth for 2017 remains skewed to the upside.

OECD Asia Pacific oil demand is expected to fall by 0.03 mb/d in 2016, while declines will continue in 2017 by 0.06 mb/d, y-o-y.

Other Asia
In October 2016, Indian oil demand rose by 0.26 mb/d, or around 6.5%, y-o-y. All products picked up momentum with the exception of jet/kerosene, with most gains recorded in the heavy part of the barrel.

LPG demand increased by more than 11.8% y-o-y, growing by more than 77 tb/d as governments pushed households to consume LPG instead of other fuels. This led to the development of LPG supply infrastructure projects, making more LPG available to end users at subsidized prices. Moreover, for the transportation sector, gasoline consumption increased by 10.5% y-o-y as a result of increases in vehicle sales. Overall passenger vehicle sales recorded growth of 4.5% in October with the 2-wheeler segment, which consumes gasoline as a fuel, registering a firm 8.7% rise y-o-y. Diesel oil demand also remained elevated, rising by 2.9% y-o-y as improvements across various sectors, including the construction and mining sectors, supported the uptick in diesel requirements. In contrast, jet/kerosene declined by 29 tb/d, or around 9.1%, y-oy as slower momentum in the aviation sector dented demand slightly.

So far in 2016, Indian oil demand growth is solidly above the five year average by more than 0.17 mb/d y-t-d with LPG and gasoline demand supporting growth, primarily led by an improvement in the pace of the overall economy.

As for other countries in the region, oil demand was also firm during most of 2016. In Indonesia, oil demand has grown by around 94 tb/d, or 6.0%, y-o-y so far in 2016, in line with rising industrial and manufacturing activities and overall healthy growth in the country’s economy. All the main petroleum categories saw positive growth in demand, except gasoline, which declined slightly. Strength was evident in the road transportation, residential and industrial sectors, notably the electricity generation sector, implying solid gains in requirements for LPG, jet/kerosene and diesel oil.

In Thailand, rising naphtha and gasoline requirements during the first nine months of 2016 were slightly offset by strongly declining LPG demand, mainly as a result of fuel substitution. Oil demand growth was generally solid in 2016 as requirements increased by more than 60 tb/d, or 5.8%, y-o-y during the first nine months of the year.

Oil demand in Taiwan, however, remained stagnant during the first nine months of 2016, with losses, particularly for naphtha and fuel oil. However, these losses were offset by gains, especially in LPG, gasoline and jet/fuel kerosene.

The risks for Other Asia oil demand growth in 2017 imply a positive outlook going forward. In India, oil demand is expected to be firm, dominated by transportation fuels, particularly gasoline, while the falling trend in fuel oil requirements in the agricultural sector as a result of fuel substitution to natural gas is projected to continue during the year.

Oil demand in the region is projected to rise by 0.50 mb/d in 2016. In 2017, it is foreseen to rise by around 0.37 mb/d.

Latin America
In Brazil, oil demand declined again y-oy in October, shedding around 0.22 mb/d or 8.8% y-o-y to stand at 2.32 mb/d. This decline seems to reflect the slow pace of economic activity. All products performed far lower than expected with the exception of gasoline, which continued to increase in October, rising by 30 tb/d, or 4.2%, y-o-y as the product remained a more economical choice for drivers than ethanol. Ethanol, on the other hand, fell sharply by around 0.11 mb/d, or 31.5%, y-o-y as more drivers switched away from ethanol to gasoline, taking advantage of the price differential between the two products. Moreover, diesel oil also declined during the month of October, dropping by more than 0.11 mb/d, or 10.6%, y-o-y. This sharp decline is in line with the slower economic activity in the country. Similar to last month’s forecast, 2016 oil demand in Brazil is skewed to the downside as slower economic activity in the country is predicted to adversely impact oil requirements.

In Argentina, oil demand growth levels in 2016 have been generally flat y-o-y on a cumulative basis. Product categories showing demand growth figures were LPG and fuel oil, which were counterbalanced by declines in gasoline and middle distillate requirements.

Oil demand was also on the decline during the first nine months of 2016 in Ecuador by 5.4% y-o-y. Middle and heavy distillate requirements fell as a result of slower economic activity in the country. Oil demand was similarly sluggish in Venezuela during the first nine months of 2016.

In 2017, expectations for oil demand growth in Latin America are similar to last month’s projection with a somewhat better outlook for the economy as compared to 2016. Moreover, support should be garnered from an overall improvement in economic conditions in the region with Brazil expected to lead oil demand growth in the region.

Oil demand growth in the region is projected to decline by 0.09 mb/d during 2016, while the current outlook foresees oil demand growing by 0.07 mb/d in 2017.

Middle East
In the Middle East, slower-than-expected oil demand requirements were registered during the month of October with oil demand in Saudi Arabia declining sharply for the second straight month. Oil demand has now declined in eight out of ten months in 2016 in Saudi Arabia, affecting the overall Middle East oil demand picture in 2016. This decline is primarily due to the continuing decline in consumption of direct crude for burning. Focusing on product performance, LPG, gasoline and fuel oil all recorded gains of around 17%, 2% and 34% y-o-y, respectively, with fuel oil being supported by power generation consumption, especially in the western part of the country. Y-t-d, hefty declines in heavy distillates, particularly in the other products category, and direct crude burning have led to a sharp drop in overall consumption of the country of 3.3% y-o-y, or 85 tb/d. This is contrary to the average oil demand growth of around 0.12 tb/d seen during the past five years. The completion of the Wasit gas plants in March 2016 has replaced some of the direct crude burning for power generation and is expected to replace even further quantities in the near future. Air traffic activities were also slower than a year ago due to the end of the seasonal travel period, as well as the high base of comparison denting growth levels. In October 2016, total oil demand in Saudi Arabia reached 2.49 mb/d.

Oil demand also declined in Kuwait, particularly in relation to the other products category, dragging overall consumption lower. Oil demand dropped by 19 tb/d, or 5.8%, y-o-y. A similar trend was also observed in Iraq, where oil demand shed around 10 tb/d, or 1.5%, y-o-y in October despite solid growth for jet/kerosene. In contrast, oil demand grew solidly in Iran and the UAE. In both countries, transportation fuels, notably gasoline, dominated the increases.

In 2017, Middle East oil demand growth may be challenged by some downside risks, due to geopolitical turbulence in the region. Oil demand is, nevertheless, expected to grow in, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, UAE and Jordan, with transportation fuels, especially gasoline and industrial fuels, and particularly diesel and residual fuel oil, playing a significant part in the overall oil demand growth for another year.

Oil demand growth in the region is projected to reach 0.03 mb/d in 2016. In 2017, it is anticipated to grow by around 0.11 mb/d.

Chinese oil demand grew firmly during the month of October, rising by around 0.43 mb/d, or 4.5%, returning to the robust levels of growth experienced in 3Q15 and 4Q15. This growth was determined by rising gasoline, jet/kerosene and fuel oil.

The solid increase in LPG requirements can be attributed to robust demand for winter heating in the northern part of China rather than the usual increase in demand from the petrochemical sector as some startups of planned propane dehydrogenation plants (PDH) seem to be delayed due to technical issues. LPG demand grew by 0.24 mb/d, or 17.8% y-o-y. Jet fuel rose by 97 tb/d, or 17.0%, y-o-y, driven by growth in air traffic activity and lower fares, leading to growth of more than 10% in domestic revenue per passenger kilometer. Gasoline demand was supported by vehicle sales, which increased by 20.3% y-o-y during the month of October, boosted by sport utility vehicle (SUV) sales, which rose by 43% y-o-y, according to the China Association of Automobile Manufacturers (CAAM). In October, gasoline consumption grew by around 0.14 mb/d or 5.0% y-o-y. Diesel oil also gained momentum in October, adding some 40 tb/d after a period of sharp declines. The product was supported by an increase in coal production as trucking activities improved as a result. Consumption of diesel oil is seen stabilizing going forward; however, it will remain in the negative y-o-y on an annual basis for 2016.

The overall 2016 and 2017 outlooks for China are unchanged since last month’s MOMR. In 2017, oil demand growth in China is seen to remain at a similar level as in 2016 with economic development assumed to be at similar levels to the current year. In contrast, a continuation of the fuel quality programmes, which target fewer emissions, as well as ongoing fuel substitution with natural gas and coal are also assumed in the 2017 projections.

For 2016, Chinese oil demand is anticipated to grow by 0.28 mb/d, while oil demand in 2017 is projected to increase again by 0.27 mb/d.

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