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World Oil Demand - March 2017

Source: OPEC_RP170306 3/14/2017, Location: Europe

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World oil demand grew by 1.38 mb/d in 2016, higher by around 50 tb/d than in the previous month’s report, to average 95.05 mb/d. This was mainly as a result of positive adjustments in 4Q16 data, which accounted for the most up-to-date figures from regions around the world.

In 2017, world oil demand is expected to stand at 96.31 mb/d, showing a growth of 1.26 mb/d, higher by approximately 70 tb/d from the previous month’s projections. Most of the oil demand growth is anticipated to originate from Other Asia, led by India, followed by China, then OECD America. The OECD Asia Pacific is the only region anticipated to reduce its oil requirements in 2017 y-o-y.

World oil demand for 2016 and 2017
OECD
Based on the latest available data, oil demand growth in the OECD region was revised up by around 20 tb/d in 2016. Better-than-expected data in the major consuming countries within the OECD during 4Q16, primarily in OECD Europe and the Asia Pacific, remained the major drivers of the upward revision in the region.

OECD Europe oil demand data continued to outperform the initial projections, despite high taxation relating to oil usage and a weak historical trend. The low oil price environment and improving economic conditions across the region, along with positive vehicle sales, were the major factors behind this upward adjustment. As a result, an upward adjustment (50 tb/d in 4Q16) was considered in 2016 data. For 2017, oil demand growth was revised higher in OECD Europe by 20 tb/d as assumptions for transportation fuels and petrochemical feedstocks improved.

The flourishing petrochemical industry in the OECD Asia Pacific, notably in South Korea, allowed positive adjustments to 2016 oil demand growth data by around 10 tb/d. Most of these adjustments, around 30 tb/d, are located in the 4Q16 data. This positive momentum was carried forward to 2017 with oil demand contraction for OECD Asia Pacific adjusted higher by around 20 tb/d for the full year.

OECD Americas
US
The most recent monthly US oil demand data for December 2016 imply y-o-y gains of around 0.4 mb/d, or equivalently 2% y-o-y, after increasing in October and November 2016 and enjoying an overall robust 3Q16. December 2016 data reversed upwards for less positive expectations, which were based on preliminary weekly data and implied y-o-y growth of around 0.2 mb/d. December 2016 oil demand growth was for another month largely attributed to road transportation demand and to some extent to substantially colder weather as compared to the same month in 2015.

Gasoline demand was once more supported by a continuing low fuel price environment, in combination with increasing mileage and despite some weakening in auto sales, showing a decline of around 3% y-o-y in December 2016. Following the peak recorded during 2014, total light vehicle sales were seen to be on the decline in 2015 and 2016. During December 2016, diesel oil demand rose strongly, mainly as a result of colder-than-expected weather as compared to the previous year and at similar levels to the historical norm and also in line with expanding economy jet fuel and residual fuel oil requirements, which also showed gains y-o-y during December.

The overall picture in 2016 showed solidly growing US oil demand, dominated by rising gasoline, jet fuel and fuel requirements, in combination with declining diesel oil demand. Preliminary weekly data imply falling oil demand in both January and February 2017, with declines in gasoline and diesel oil requirements, which are partly offset by bullish jet/kerosene and fuel oil demand, the latter mainly as a result of increasing industrial production activities. The picture of US oil demand seems to be also in line with the economy in the country.

The outlook for 2017 US oil demand remains strongly dependent on developments in the US economy and road transportation fuel oil prices. Risks are seen more balanced as compared to last month’s projections.

Canada
Latest December 2016 data for Canada showed slightly falling oil requirements y-o-y, notably for LPG and naphtha, while gasoline, jet/kerosene and diesel oil demand remained strong y-o-y.

Mexico
In Mexico, January 2017 oil requirements were seen decreasing y-o-y, characterised by shrinking oil demand in LPG, as a result of substitution with other energy commodities and gasoline. However, this was partly offset by growing y-o-y requirements for all other petroleum product categories. For the whole of 2016, oil demand in Mexico was seen declining, yet with the majority of main product categories being in the positive. Exceptions were sluggish LPG and fuel oil requirements, mainly as a result of substitution.

In 2016, OECD Americas oil demand grew by 0.18 mb/d as compared to 2015. In 2017, OECD Americas oil demand is projected to grow by 0.20 mb/d as compared to 2016.

OECD Europe
Latest and partly preliminary January 2017 data for the European Big 4 oil-consuming countries implied a decreasing trend y-o-y. Gains in requirements for diesel oil gasoline and jet/kerosene have been more than offset by losses in demand for all other petroleum product categories. Following solid gains in demand for 2015, the year 2016 closed also with an increase for the whole region - by around 0.25 mb/d, with gains roughly distributed equally throughout the quarters. In line with the improvements in the overall economy of the region, solid gains in auto sales, the weak historical baseline and the continuing low oil price environment, diesel and to some extent gasoline usage in road transportation seem to be stimulated, along with rising demand in all other petroleum product categories. Nevertheless, there is considerable uncertainty for 2017 as there are a number of substantial factors pointing to opposite directions. The expected improvements in the economy and the current low oil price environment support oil demand, while unsolved budget deficits in several countries and policies towards fuel taxation pose downside risks. The current oil demand picture is in line with leading indicators, such as increasing industrial production and rising car sales, the latter for almost 4 years; in fact, passenger car sales grew again in January 2017 by around 10% y-o-y for the biggest parts of the region.

The expectations for 2017 oil demand in the region have slightly improved from last month’s report, despite lower growth as compared to 2015 and 2016.

In 2016, OECD Europe oil demand grew by 0.25 mb/d y-o-y, while oil demand during 2017 is forecast to be 0.07 mb/d higher than last year.

OECD Asia Pacific
Japan
Japanese oil demand decreased in January 2017 by 0.1 mb/d y-o-y. Two petroleum product categories to see gains y-o-y was LPG, as a result of increased usage in the petrochemical industry, and diesel oil. The demand for all other petroleum product categories shrank, particularly for naphtha and residual fuel oil. Oil requirements in crude and fuel oil for direct burning and electricity generation fell for another month, as a result of substitution with other commodities, coupled with the warmer weather experienced during January.

For the whole of 2016, Japanese oil demand fell by 3% y-o-y. Jet/kerosene was the only product with requirements on the plus. The outlook risks for 2017 see Japanese oil demand remaining skewed to the downside and determined by the development of the country’s economy, as well as the expected revival of some of the country’s nuclear plants during the year.

South Korea
As a continuation of the solid oil demand data recorded during 2016, South Korean oil demand enjoyed robust growth during the month of December, rising by more than 0.16 mb/d, or by around 6% y-o-y. South Korean overall oil demand in 2016 registered a substantial improvement with growth levels of 0.16 mb/d. According to December 2016 figures, LPG, jet/kerosene and diesel oil demand led the growth, rising by around 0.06 mb/d (22%), 0.05 mb/d (22%) and 0.05 mb/d (10%) y-o-y, respectively. This was mainly due to better-than-expected demand in the petrochemical and transportation sectors. Other positive contributors to South Korean oil demand growth during December 2016 were naphtha and gasoline, while the overall growth was partly offset by declining fuel oil requirements. For the whole of 2016, South Korean oil demand remained robust, with requirements for all main petroleum product categories rising, particularly LPG and fuel oil. South Korean oil demand is projected to hold a positive picture also in 2017, particularly as most assumptions, i.e. economic development, as well as expansion in the petrochemical and transportation sectors, are pointing to the upside.

In 2016, OECD Asia Pacific oil demand increased by just 0.03 mb/d y-o-y. In 2017, the region’s oil demand is projected to contract by 0.02 mb/d as compared to 2016.

Non-OECD
Based on the latest available data, oil demand growth in the non-OECD region was revised higher by around 35 tb/d in 2016, mainly because of improvements in Other Asia (20 tb/d), Latin America (10 tb/d) China (10 tb/d), as well as the FSU. For 2017, some upwards revisions were accounted for in China and the FSU (10 tb/d and 20 tb/d, respectively) mainly reflecting better picture for the petrochemical sector and improving economic momentum.

Historical world oil demand baseline has been adjusted upwards by approximately 0.3 mb/d including additional volumes relating mainly to the light end of the barrel, which have resulted from a continuing and increasing interaction between natural gas and oil. More specifically, volumes of naphtha and ethane, which are used as feedstock in the petrochemical industry in Thailand, as well as a re-assessment of historical Chinese apparent oil demand, taking into account the most recent 2014 and 2015 available data. Since most countries’ statistical offices release their recent annual data towards the middle of 2017, further revisions to historical world oil demand baseline may occur.

Other Asia
India
Indian oil consumption started 2017 on a declining trend, as expected. Oil demand in January shed more than 0.20 mb/d and around 4.5% y-o-y, with total consumption remaining at 4.34 mb/d level.

This decline was led by shrinkage in middle distillate requirements, followed by fuel oil. Diesel oil requirements declined the most - in volume terms, the product shed around 0.13 mb/d, or 7.8% y-o-y, as demand was impacted by the cash crunch issue which led to lower demand from the agricultural and construction sectors, along with related sectors, such as cement and steel. Demand for diesel is projected to be negatively influenced by the outcome of the demonetisation policy in the country, at least in 1Q17, before improving during 2H17, mainly propelled by a pick-up in economic activities. Indian gasoline demand also fell in January, defying December’s healthy growth levels of around 45 tb/d. Gasoline demand was slightly lower by 3 tb/d in January, despite the recovering auto sales market. Domestic car sales expanded sharply during the month, rising by around 11% y-o-y. Yet, sales of two-wheelers, which use gasoline as a preferred fuel, declined by more than 7% y-o-y, whereby two-wheelers demand accounts for more than 50% of gasoline demand in India. Total consumption of LPG remained above the 0.70 mb/d level in January adding around 0.10 mb/d, or 14.2% y-o-y. The high demand is as a result of the government’s commitment to supply more than 50 million connections to rural households in the next three years. Additionally, weather conditions were colder-than-usual in most parts of the country, allowing for extra LPG consumption for heating purposes. Total product demand in India is anticipated to grow by around 0.14 mb/d in 2017, mainly as a result of stable economic conditions in the country, especially towards 2H17, encouraging steady growth for diesel oil and gasoline.

Indonesia
Indonesian oil consumption inched up during the month of December 2016 with product demand registering a rise of 25 tb/d from levels seen in December 2015, equating to an increase of around 1.3% y-o-y. The growth in oil consumption can be mainly credited to better-than-expected data in the transportation manufacturing sectors. For 2016, oil demand showed a positive performance, higher by 24 tb/d from the previous year.

Taiwan
In Taiwan, the positive total consumption growth levels for the month of December 2016 – up by 30 tb/d or 2.9% y-o-y - was supported by high demand growth for LPG and naphtha in the petrochemical sector, as well as higher demand for gasoline supporting the transportation sector. Cumulative data for the whole of 2016 indicate that the country’s oil consumption was higher than 2015 levels by 11 tb/d, or more than 1.1% y-o-y, led by higher demand for LPG.

Looking forward, risks for 2017 in Other Asian oil demand growth are currently expected to be skewed slightly to the downside as the outlook for the Indian economy suggests a slight slowdown in the 1H17 before improving in economic activities in the 2H17, once the aftermath of the demonetisations process is over. LPG for residential use and gasoline for the transportation sector are expected to be the main providers of growth. A steady level of growth is projected across the region with Indonesia, Thailand and Singapore contributing largely to the oil demand growth.

Other Asia’s oil demand grew by 0.54 mb/d in 2016. As for 2017, oil demand is forecast to remain firm around 0.35 mb/d, however lower than the levels seen in 2016.

Latin America
Brazil
In January, Brazil’s oil demand remained in negative territory, despite promising signs emerging from some products, such as LPG, gasoline and diesel oil, which saw increases y-o-y. Oil demand in the country dipped by 20 tb/d y-o-y in line with dwindling macroeconomic data with total consumption at 2.11 mb/d. Declines were recorded across all products with fuel oil, ethanol and jet/kerosene dropping the most. Fuel oil demand declined by 29 tb/d, or by 37.9% y-o-y, to reach a total consumption level of 47 tb/d. Consumption declined as hydropower generation rebounded during the month. This was in addition to slower economic activities that have negatively impacted fuel oil demand numbers as demand also shrank in the bunkering sector.

On the other hand, gasoline demand rose during the month by 81 tb/d, or around the 12.0% y-o-y, as the product remained more viable to drivers than ethanol, which declined yet again in January. Ethanol demand eased by around 68 tb/d, or 27.7% y-o-y, as prices for ethanol increased. Diesel oil demand was slightly positive y-o-y with around 4 tb/d of growth, sending a positive signal that a rise in consumption is possible going forward. The expected improvements in the overall economic condition of the country, coupled with the low baseline of comparison, are seen as positive factors for diesel demand growth in 2017.

Argentina
Oil consumption in Argentina was slightly in the negative during the month of December 2016. It also recorded a slight decline on a cumulative basis for 2016 as a whole. Oil demand declined by just 6 tb/d in 2016 with no significant increases or decreases in the product mix. Total consumption reached 0.72 mb/d in the year.

Looking forward, the risks for oil demand for 2017 are currently tilted to the upside as economic conditions in Brazil and other countries in the region are anticipated to improve as government spending on projects is anticipated to reappear. In terms of products, diesel oil and gasoline have the higher growth potential and are expected to fuel the industrial and transportation sectors.

Latin American oil demand declined by 90 tb/d in 2016. For 2017, the region’s oil demand growth is forecast to be higher y-o-y at around 70 tb/d.

Middle East
Saudi Arabia
In Saudi Arabia, January 2017 oil consumption continued to fall on the back of slower-than-anticipated requirements in the electricity and construction sectors. Oil demand declined by 0.18 mb/d from January 2016 levels, with all products declining, with the exception of LPG, which recorded solid gains adding some 13.7% y-o-y. Crude oil for power generation was lower on a y-o-y basis and burning crude for the purpose of generating electricity declined in line with seasonal norms. Demand for power generation traditionally slows during 1Q as consumption requirements for air conditioning are trimmed. Additionally, the Kingdom’s new policies of reducing subsidies for electricity in the residential and industrial sectors appear to have reduced the level of consumption in the country. Lastly, the impact of substitution was observed in the consumption of direct crude for burning performance since 2Q16 when the Wasit Gas Plant (WGP), located in the north of Jubail Industrial City, which produces around 1.7 billion standard cubic feet per day (bscfd) of clean sales gas, started supplying natural gas to electrical power and desalination plants in the Kingdom. Diesel oil requirements also shrank in January, shedding some 0.13 mb/d, or around 18.2% y-o-y. This reduction is primarily on the back of lower construction activities in the country. Transportation fuels in general were also seen declining with gasoline and jet/kerosene dropping by around 7.2% and 11.5% y-o-y, respectively. The reduction in subsidies, a general slowdown in consumer spending and higher inflation rates are cumulatively having a negative influence on products’ performance. On the other hand, consumption for LPG rose by 7 tb/d on the back of extra demand in the petrochemical sector. With fuel oil receiving support from 4 GW of new fuel oil generation capacity, the product increased by 42 tb/d y-o-y.

The oil demand performance was rather mixed in the region. While growth in oil requirements declined in IR Iran, it increased slightly in Kuwait and Iraq and solidly in Qatar. Going forward, Middle East oil demand is subject to the performance of various economies in the region. The impact of oil prices on countries’ spending plans needs to be closely monitored. The issues of subsidy reduction and substitution are important factors going forward.

For 2016, Middle East oil demand recorded contraction of around 13 tb/d y-o-y, while oil demand in 2017 is projected to increase by around 0.11 mb/d.

China
China’s oil demand continued to rise in January 2017, after firm growth in 2016 with an expansion of around 2% y-o-y for the full year. The demand growth for the country registered around 0.39 mb/d as compared to January 2016. In absolute figures, total oil demand for the country stood at 11.07 mb/d.

In January 2017, oil demand growth was determined by solid increases in LPG, gasoline and jet/kerosene requirements, which added 18.0%, 5.7% and 5.7% y-o-y, respectively. On the other hand, middle distillates and fuel oil consumption dropped by around 1.5% y-o-y. LPG demand reached total consumption of around 1.40 mb/d, higher than the level recorded in January 2016 by around 0.21 mb/d and mainly supported by propane dehydrogenations capacity (PDH) increased capacity and utilisation rates. The projection for LPG remains solid in 2017 as more PDH plants are planned to continue increasing their feedstock intakes - Haiwei’s with a capacity of 0.5 Mtpy and Ningbo Fuji’s with a capacity of 0.66 Mtpy, in addition to new plants scheduled to start up towards 2H17. Gasoline demand continued to grow robustly during the month of January, rising by 0.16 mb/d to reach a historical high of total consumption of 2.90 mb/d. Demand was supported by additional driving ahead of the holiday season, while car sales in January reached 2.2 million units, down by 1.1% y-o-y. As for passenger cars by type, Sport Utility Vehicles (SUV) rose firmly increasing by 10.5% y-o-y, while for other types of cars, there was a sales decline of 3.0% y-o-y, with Multi-Purpose Vehicles (MPV) declining by 21.1%. Jet/kerosene total consumption during the month of January is now calculated to be at 0.64 mb/d, up by 30 tb/d and boosted by domestic air travel for the holiday season.

Consumption of fuel oil was seen declining slightly, based on initial data. The decrease in growth is marginal at around 8 tb/d y-o-y. Similarly, diesel oil consumption decreased by around 42 tb/d, mainly in line with slightly slower manufacturing activities as compared to November and December 2016. The official manufacturing purchasing managers’ index (PMI) was at 51.3 in January 2017, from 51.4 in December 2016.

China completed 2016 with firm oil demand growth data, driven mainly by LPG feeding into the growing petrochemical sector, as well as gasoline-supported robust car sales. For 2017, the outlook is currently balanced between positive and negative risks; the petrochemical sector and expansion projects in the refinery sector are the upside potential for China’s oil demand growth, while possible fluctuations in the economic environments, as well as on policies encouraging a reduction in transportation fuel consumption, remain the negative downside risks.

For 2016, Chinese oil demand grew by 0.31 mb/d, while oil demand in 2017 is projected to increase by 0.28 mb/d.

Reviewing 2016 world oil demand
As the initial outlook of the OPEC Secretariat forecast in July 2015, world oil demand growth in 2016 stood at 1.38 mb/d, although there have been significant adjustments in regional growth data. The improvement in the direction of the overall global economy and the low oil price environment supported upward revisions to OECD oil demand, particularly in Europe and Asia Pacific. These revisions were, however, offset by sluggish demand in the principal non-OECD hubs, such as Latin America and the Middle East, as a result of weaker economic growth, fuel substitution and partial subsidy removals on oil products usage. Growth in non-OECD Asian oil demand, notably India and China remain robust and above the historical average. From a global perspective, oil usage in the road transportation and petrochemical sectors dominated the overall gains. Gasoline, automotive diesel, as well as LPG and naphtha requirements, lead the growth, despite diverse regional patterns. Growth was roughly equally distributed between 1Q16, 2Q16 and 4Q16 at around 1.4 mb/d, while it was lower at 1.1 mb/d during the 3Q16.

In OECD, oil demand in Americas and Europe grew solidly, driven mainly by a strong road transportation sector and implying stronger gasoline requirements in Americas and stronger automotive diesel in Europe. Strong oil demand growth in Europe, in particular, surprisingly came up for a second consecutive year, despite high taxation relating to oil usage and a weak historical baseline, the continuing low oil price environment and improving economic conditions across the region. In Asia Pacific, the flourishing petrochemical industry, notably in South Korea, pushed 2016 oil requirement levels slightly higher than 2016 for the first time since 2012.

In the non-OECD, oil demand growth has been dominated by Other Asia and China, while oil demand declined in Latin America and the Middle East. In China and Other Asia, India took a great share of oil demand growth, with the usage of lighter petroleum products – such as gasoline, LPG and naphtha – in the transportation and petrochemical sectors accounted for the bulk of gains. Fuel substitution and the partial removal of subsidies in the Middle East lead to the largest up-to-date y-o-y decline in oil demand and the first since 1963. Sluggish direct crude burning, in addition to weaker gasoline and diesel oil demand growth, were the main characteristics for 2016. Economic concerns in key Latin American oil consuming countries coexisted with y-o-y oil demand contractions in the region for the second year in a row, with declining oil usage in all main economic sectors, especially in industrial transportation.

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