World Oil Demand - September 2017Source: OPEC_RP170906 9/12/2017, Location: Europe
In 2017, world oil demand growth was revised higher by around 50 tb/d, primarily as a result of better–thanexpected performance from OECD America and Europe in 2Q17. Hence, world oil demand growth is now pegged at 1.42 mb/d, with total global consumption at 96.77 mb/d.
World oil demand growth for 2018 was also revised up by around 70 tb/d from the previous month’s report; it is now anticipated to be 1.35 mb/d, with total global consumption of around 98.12 mb/d.
Historical oil demand has been revised upward for 2015 and 2016 by approximately 0.3 mb/d to reflect latest annual Chinese data and following comprehensive review and analysis of available information. Upward revisions reflect particularly higher Chinese demand for the lighter part of the barrel, LPG and gasoline, as well as partly residual fuel oil; these upward revisions have been however partly offset by lower adjustments in the demand for middle distillates, gas diesel oil and jet kerosene.
Based on the latest available data, OECD oil demand growth was revised upward for the second consecutive month by 60 tb/d to average 0.37 mb/d. Oil demand has been quite robust in 2Q17, particularly in the Americas and Europe.
OECD America’s oil demand data implied further firm developments during the month of June, with gains in transportation and industrial fuels and particularly strong gains in gasoline, jet fuel, gas diesel oil and LPG. Despite this upward trend in 2Q17 (by 100 tb/d), expectations for 3Q17 have been lowered (by 40 tb/d) as momentum in transportation fuels is expected to somewhat weaken as a result of the catastrophic effects of Hurricane Harvey in the month of August. The historical baseline for 2016 was also adjusted lower (by 70 tb/d for the full year) to account for the most up-to-date data and assessments.
OECD Europe oil demand data continued to outperform initial projections. Improving economic conditions across the region, along with positive vehicle sales and a low oil price environment, are in line with upward adjustments of 100 tb/d and 40 tb/d in 2Q17 and 3Q17, respectively. For 2018, oil demand growth projections were adjusted higher (by 30 tb/d for the full year) from last month’s report, in line with the steady economic outlook for Europe.
Expectations for the OECD Asia Pacific region remained unchanged from last month’s report. The flourishing petrochemical industry in South Korea was roughly offset by declining oil demand in Japan. Oil demand growth for 2018 was revised slightly upwards by 10 tb/d as a result of midly improved expectations in the region’s economy.
The latest available US monthly data for June calls for a strong increase in oil demand of around 0.7 mb/d y-o-y, continuing the recently observed steep growth in oil demand and in line with a number of key indicators – the country’s robust economic growth, industrial activity and the low oil price environment. Gains in oil demand for another month came mainly from the transportation and industrial sectors. Demand for LPG was seen as growing y-o-y, notably for the petrochemical and to a minor extent the transportation sectors. June distillate demand increased sharply by more than 0.34 mb/d y-o-y, with the bulk of gains registered in the industrial sector. Growth in jet kerosene was also solid, as expected at the beginning of the traditional holiday season and in line with increased air travel. June gasoline requirements continued to grow for the third consecutive month, despite declining vehicle sales by 1.5% year-to-April as compared to same period last year and a high baseline for the same month in 2016. Moreover, June residual fuel oil requirements remained roughly flat y-o-y.
With data available for eight months of 2017 – monthly data until June and preliminary weekly data for July and August – US oil demand is seen to grow strongly by around 0.5 mb/d. However, the full impact of Hurricane Harvey is not yet reflected in the preliminary data. The bulk of growth originated in the lighter and middle parts of the barrel; LPG and distillates, gas diesel oil and jet kerosene and gasoline demand to date are continuing to see minor growth. US oil demand for the remainder of 2017 and 2018 is expected to be determined by developments in distillate and gasoline usage in the road transportation sector and hence indirectly by fuel price levels and the general economic activities, which most likely will support demand for industrial and construction fuels. Therefore, the overall implied risks for the future development of US oil demand are balanced. Upside risks originate in projected economic growth and oil usage in the transportation and industrial sectors, while fuel substitution and vehicle efficiencies represent major downside risks.
Mexican oil demand remained negative for another month in July, declining by 2.7% y-o-y. Shrinking demand for the majority of petroleum product categories has been only partly offset by rising residual fuel oil requirements. The risks for 2017 and 2018 Mexican oil demand are skewed to the downside and relate to the development of the country’s overall economy.
In Canada, June came up strongly, increasing y-o-y for the second consecutive month. Demand for the main petroleum products registered gains, particularly for residual fuel oil, gasoline and gas diesel oil. The overall increase was partly offset by slightly declining naphtha demand. In 2018, Canadian oil demand is projected to remain roughly at 2017 levels, showing only marginal increases with balanced risks.
In 2017, OECD Americas’ oil demand is expected to grow by 0.23 mb/d compared with 2016. In 2018, OECD Americas’ oil demand is projected to increase by 0.19 mb/d compared with 2017.
Following strong growth for the whole of 2015 and 2016, European oil demand continued to surprise with a strong performance in the first half of 2017 – most data covers up to June 2017 – with some preliminary indications for July. Solid gains were seen on top of high historical baseline volumes during 2015 and 2016 and are the result of an improving economy and consequently rising oil usage in the transportation and industrial sectors, as well as colder temperatures than the historical norm during the first quarter of 2017. The bulk of gains were seen in middle distillates, diesel oil, jet kerosene and naphtha; gains were partly offset by shrinking residual fuel oil and demand.
A large majority of countries in the region showed strongly increasing oil demand year-to-date compared with the same period in 2016. Gains in road transportation fuels are also a reflection of the positive momentum in auto sales, which seem to be gaining after a long period of decline. General expectations for the region’s oil demand growth for the remainder of 2017 and 2018 are positive, though more conservative than those experienced during the first half of the year, mainly due to risks that traditionally relate to the region’s oil demand structure, such as high taxation polices for oil use and fuel substitution.
OECD Europe oil demand is projected to grow by 0.15 mb/d in 2017, while 2018 oil demand will grow slightly by 0.07 mb/d compared with 2017.
OECD Asia Pacific
Preliminary data implies that Japanese oil demand shrank again in July y-o-y by a slight 0.05 mb/d following continuing declines for all months in the first half of the year. Despite overall declines, however, the performance of some petroleum products remained positive. Jet/kerosene, fuel oil and diesel requirements saw y-o-y gains as a result of their usage in the petrochemical, industrial and transportation sectors. For gasoline, demand remained stagnant y-o-y, while requirements for direct use crude saw substantial losses compared with the same month in 2016 as a result of continuing fuel substitution by other primary energy commodities.
The Japanese oil demand outlook for 2017 and 2018 remains unchanged from last month’s forecasts, with risks continuing to be skewed towards the downside mainly due to weaker economic forecasts, increasing efficiencies in the road transportation sector, as well as fuel substitution. Projections for 2018 assume a firm likelihood that an additional number of nuclear plants will restart operation.
Positive indications for oil demand in the region originate mostly in South Korea, along with smaller additional volumes for Australia, New Zealand and some other countries. The latest available Korean data for June indicates an increase of 0.06 mb/d over the same month last year, with demand for the majority of main petroleum product categories on the rise, particularly naphtha, diesel oil and gasoline. The outlook for South Korean oil demand in 2017 and 2018 remains positive, with risks slightly skewed to the upside compared with last month’s projections.
OECD Asia Pacific oil demand is projected to dip slightly by 0.01 mb/d in 2017, while a similar drop will also take place in 2018.
Based on the latest available data, oil demand growth in non-OECD regions was adjusted marginally lower by around 7 tb/d in 2017, despite some upward revisions in the region (China by 33 tb/d on average for 2017).
In Other Asia, oil demand growth was adjusted lower (by 0.10 mb/d in 1Q17 and 30 tb/d in 3Q17), mainly reflecting slower-than-expected oil demand developments following the demonetization policy in India.
Latin American growth was also revised slightly lower (by 7 tb/d in 2Q17) due to slower economic momentum denting oil demand.
In China, upward revisions (by 20 tb/d in 2Q17, 70 tb/d in 3Q17 and 40 tb/d in 4Q17) stemmed from betterthan-expected demand in the petrochemical and transportation sectors of the country. The historical baseline for 2016 was also adjusted higher (by +0.28 mb/d for the full year) to account for the most up-to-date data. For 2018, oil demand growth was adjusted higher (by 35 tb/d for the full year) from the previous month’s projection, mainly to reflect the expected firm expansions in the petrochemical and transportation sectors.
India’s oil demand continued to increase at a slower pace than in 2Q17. July registered an increase of around 43 tb/d, or 1.1%, y-o-y, with total product demand slightly above 4 mb/d. Looking at mixed product performance, weakness in ‘other product’ categories negatively affected the overall oil demand growth picture as the Goods and Services Tax (GST) caused uncertainties in the manufacturing sector lowering demand for petcoke and lubricants, while demand growth for diesel, gasoline and LPG rose at various magnitudes.
Diesel oil demand recorded the greatest growth in July, when products registered an increase of about 0.13 tb/d, or 9%, y-o-y leading to total consumption of 1.64 mb/d. Improved overall economic activity, ongoing infrastructure projects, especially road construction, as well as the economic viability of public transport and diesel-driven vehicles as a result of lower fuel costs have positively affected diesel oil consumption. Gasoline consumption increased by 61 tb/d, equating to 12% y-o-y in July. The increase in gasoline demand growth is largely attributed to the ongoing increase in domestic passenger vehicles sales, which expanded by around 15% y-o-y in July. Growth in two-wheeler sales was also higher at 14% y-o-y; 61% of India’s gasoline consumption is attributed to two-wheeler growth. LPG grew solidly for the seventh consecutive month, higher by 75 tb/d, or 13%, y-o-y, with total consumption at around 0.7 mb/d. LPG demand continues to be led by the residential sector, as ongoing projects to provide more LPG connections to households are commissioned.
A decrease in fuel oil consumption of 31 tb/d, or around 10% y-o-y, is a result of declining consumption in the steel and agriculture sectors, as well as substitution programmes favouring natural gas.
In Indonesia, the latest June 2017 data shows yet another increase of around 2% y-o-y. Additionally, y-t-d data up to June shows a rise of 30 tb/d, or 2%, y-o-y, indicating firm demand growth in the county. In June, products showed mixed performance, while demand for some transportation fuels (gasoline and diesel oil) increased and LPG, jet/kerosene and ‘other products’ categories declined.
In Thailand, oil demand in June was also in positive territory, with growth of around 4% y-o-y, led by LPG, which rose more than 20% y-o-y, as demand for the petrochemical sector picked up. In addition, some support came from transportation fuels, particularly gasoline, which increased by around 9% y-o-y.
The demand expectations for Other Asia 2017 are now slightly below those of the previous month’s report as a result of weaker-than-expected oil demand growth from India in 1Q17. For 2018, oil demand growth in the region remains as highlighted in the previous month’s report, which indicates steady economic conditions. India is anticipated to be the major contributor to growth in the Other Asia category. Middle distillates, followed by gasoline, are the leading products for oil demand growth in 2018.
Other Asia’s oil demand is anticipated to grow by 0.33 mb/d y-o-y in 2017, while in 2018, it is projected to rise by 0.33 mb/d.
In Brazil, oil demand grew during July, edging up by 35 tb/d, or 1.4%, compared with the same period in 2016. Increase in oil demand growth was led by gasoline, which rose by around 53 tb/d, or 8%, y-o-y. Demand was stimulated by cheaper gasoline prices compared with ethanol, encouraging drivers to use gasoline in their flex-fuel engine vehicles. On the other hand, ethanol demand has been declining since the beginning of 2016, as curtailed production led to higher ethanol prices, hence limiting demand. Ethanol demand declined by around 57 tb/d in July, while diesel demand increased in the same month by around 25 tb/d, or around 3% y-o-y. This increase is the result of a slow improvement in the overall economy, as improvement in various sectors such as transportation, agriculture, construction and industry all contributed positively. Fuel oil demand increased marginally by around 2 tb/d y-o-y to satisfy additional demand in the power sector.
In Argentina, the latest available data for the month of June shows declining oil demand requirements; oil demand edged down by 26 tb/d, or by 3%, y-o-y. While transportation fuels have recorded some gains led by jet/kero and gasoline, those were outweighed by declines in petrochemical feedstock and power generation fuels, namely LPG, diesel oil and fuel oil.
Going forward, 2017 and 2018 projections for oil demand growth in Latin America are similar to last month’s projections, and account for general improvement in the overall regional economy. Brazil is projected to by the main contributor to growth, led by transportation fuels.
Latin American oil demand is expected to rise by 50 tb/d in 2017 and gain some momentum in 2018, increasing by around 90 tb/d.
In Saudi Arabia, oil demand returned to positive growth after two consecutive months of decline, rising for the third time only in 2017 by 0.14 mb/d to 2.8 mb/d in July, which equates to 5.4% y-o-y. Fuel oil demand growth led the overall increase along with steady rises in transportation fuels gasoline and jet fuel, as well as direct crude burning for the purpose of power generation. Those increases outweighed declines in diesel oil, the ‘other products’ category and LPG. Demand for fuel oil was in line with seasonal trends, boosted by an increase in capacity for oil-fired power generation plants as the country plans to expand the power generation sector. High temperatures coincided with Eid holidays, which also provided support. Direct crude oil for the purpose of power generation was also higher y-o-y as a result, adding 60 tb/d or 9% y-o-y. Gasoline and jet fuel both rose, by 9% and 13% y-o-y respectively, in line with an uptick in summer driving and school holiday seasons. Diesel oil demand, on the other hand, dipped by as much as 0.13 mb/d, or 17%, y-o-y. The overall slowdown in economic activities in addition to the replacement of diesel oil in the power generation sector in the southern and western regions resulted in lower demand in the country. Diesel oil demand peaked in September 2015 when total consumption reached around 1.0 mb/d. Total consumption for diesel oil stood at 0.63 mb/d in July 2017.
July oil demand growth in Iraq was broadly flat, with total product consumption back below the 0.7 mb/d mark at 0.67 mb/d. This data represents the slowest pace of growth so far in 2017. Product categories saw mixed performance, while demand for transportation fuels – jet fuel, gasoline and diesel oil, along with fuel oil – increased over the course of the month. Direct crude for power generation and naphtha lost ground, dragging overall consumption lower.
Oil demand growth in the Middle East in 2017 is foreseen to rise over 2016 levels, as economic momentum gains pace y-o-y, while for 2018 the level of oil demand growth is anticipated to moderate slightly from 2017 levels. Oil demand in Saudi Arabia is expected to fluctuate during the reminder of the current year as a result of consumer reactions to economic reform policies in the country. Demand from Iraq is projected to contribute positively to oil demand growth in the region, along with IR Iran, the UAE and Kuwait, which will provide support to a lesser extent.
Middle East oil demand for 2017 is projected to increase by 0.11 mb/d, while oil demand in 2018 is anticipated to rise by 0.10 mb/d.
In July, Chinese oil demand continued to grow at a very healthy pace, rising by around 0.69 mb/d or around 6% y-o-y. Total oil demand reached 11.67 mb/d during the month. Year-to-date data indicates average growth of 0.55 mb/d, more than doubling the growth recorded during the same period in 2016 of 0.21 mb/d y-o-y.
The current solid pace in Chinese oil demand comes primarily from increasing LPG as a petrochemical feedstock as well as fuel oil, jet/kerosene and gasoline, with gains of more than 20%, 16%, 13% and 4% y-o-y, respectively. LPG demand rose by a massive 0.3 mb/d y-o-y with total consumption reaching 1.78 mb/d as ongoing demand from the petrochemical sector provided strong support. Healthy demand growth for LPG is anticipated to continue until the end of the year, despite a possible seasonal slowdown towards the end of 3Q17. Fuel oil consumption rose by 69 tb/d from July 2016 levels. This is largely attributed to stronger-than-expected economic growth leading to higher demand in the petrochemical and power sectors.
Gasoline demand was higher by around 0.10 mb/d y-o-y, once more motivated by robust sport utility vehicle (SUV) sales and warm weather. Vehicle sales rose during the month of July, adding around 4% y-o-y with total sales reaching 1.7 million units. SUV sales also rose substantially, adding around 17% compared with one year ago. On a cumulative basis, with data up to July, the sale of passenger cars reached 12.9 million units, up by 2% from the same period in 2016. Jet/kerosene demand rose by 87 tb/d y-o-y continuing its solid performance in 2017 as domestic air traffic improved over the summer holiday travelling season, with a similar trend anticipated in August.
Projections for 2017 oil demand development in China improved from last month’s report due to solid performance in 1H17. In 2018, projections based on transportation and industrial fuels are to rise next year, though slightly lower GDP growth is expected compared with 2017 at 6.3%. Ongoing fuel quality programmes target fewer emissions and the continuation of fuel substitution with natural gas.
Chinese oil demand for 2017 is projected to rise by a firm 0.39 mb/d, while 2018 demand growth is estimated to be 0.35 mb/d.
Electric vehicles – recent developments
In absolute numbers, the ratio of electric vehicles (EVs) in 2016 globally is still very small, with a share of 0.9% in the US, while in Europe EVs made up a total of around 1.5% of all new passenger car registrations over the same period. Germany actually saw a decline in purely electric vehicle registrations in 2016 from a year earlier, to average a share of 0.7% of total new car sales. New car registrations in Europe for 2016 have shown that diesel is still the most popular fuel among buyers of new cars, accounting for 49.9% of the EU-15 market and gasoline’s market share grew to 45.8% from 43.5% a year earlier. In Asia, China showed an impressive 500,000 new EV registrations in 2016. However, this still only amounts to 1.8% of total new vehicle registrations.
Given the very low share of total passenger cars, worldwide sales of EVs were up by 42% in the year to June 2017, according to data from www.insideevs.com, with sales of plug-in EVs rising by 102,106 units in June, the second-highest monthly volume on record. In the US, plug-in sales surged by 44.8% in the 12 months to June 2017 from a mere 4.4% in the same period a year earlier. The Tesla Model S, retained the top spot for seven months to the end of July, while sales of the Chevrolet Bolt EV have been steadily increasing. China remains the largest market for EVs globally, with an increase of 42% in the sale of plug-in passenger cars in the first half of 2017 over the same period a year earlier. According to EV volumes, “new energy” passenger car sales are growing 20 times faster than the Chinese car market as a whole, to reach 2.5% of total new sales.
From the point of view of the industry, several global automakers have recently announced that they will intensify the development of hybrid and electric vehicles in an effort to further reduce carbon emissions. In the summer of 2017, BMW announced that in 2019 it will begin producing a version of its popular Mini that will run solely on battery power. This was followed by a startling declaration by Swedish automaker Volvo, owned by Chinese automotive giant Geely, to introduce five all-electric car models between 2019 and 2021 and build the rest of its hereto solely gasoline and diesel-driven cars with hybrid engines. In addition, Ford Motor signed a memorandum of understanding with China’s Anhui Zotye Automobile in August 2017 to explore the establishment of a joint venture for the development, production, marketing and servicing of a new line of all-electric passenger vehicles in China. VW has also announced that it plans to invest $10 billion over the next five years in electric vehicles. However, the company also plans to spend $22 billion over the same time period to develop more efficient internal combustion engines (ICE).
Furthermore, San Francisco transportation company Uber has just announced the creation of a “clean air fund” in the amount of GBP150 million for the city of London in order to support its drivers to switch to hybrid and electric vehicles in an effort to phase out diesel cars from its ride-hailing service. Uber aims to be hybrid or electric by 2019 and fully electric by 2025 in the UK capital. Uber currently has a fleet of 40,000 cars and 3 million users in London.
In the second week of September China’s Vice Minister of Industry announced that the country was looking to ban the production and sale of diesel and gasoline cars and vans. There was no mention of a date for the ban to come into force, but he said that the "relevant research" was being undertaken. China produced some 28 million cars last year, almost a third of the global total. This follows earlier statements by government officials in the UK and France to ban new gasoline and diesel cars in their countries by 2040, as part of efforts to reduce pollution and carbon emissions.
Meanwhile, on the other side of the Atlantic, the US President’s budget proposal for 2018 called for slashing funding to the Environmental Protection Agency’s budget by 31%, or $ 2.6 billion, and the discontinuation of the Clean Power Plan (CPP), which is instrumental for the US to live up to its carbon emission reduction promises under the Paris Agreement. In addition, the current renegotiation talks on the NAFTA Agreement include returning a minimum percentage of American automobiles to be produced in the US as the automobile sector accounts for the largest share of the US trade deficit with Mexico. Whether the US is likely to join the other nations in their drive towards electric vehicles remains to be seen.
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