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World Oil Demand - May 2017

Source: OPEC_RP170506 5/11/2017, Location: Europe

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World oil demand for 2016 was revised up by around 65 tb/d to reflect the most recent data with the most notable change being in OECD Europe. Total world oil demand growth for 2016 stood at 1.44 mb/d, and total oil consumption averaged 95.12 mb/d. In 2017, world oil demand is anticipated to grow in line with the previous report despite some positive and negative revisions in 1Q17. Oil demand growth is projected to rise by around 1.27 mb/d, with total oil consumption reaching 96.38 mb/d.

Based on the latest available data, oil demand growth in the OECD region was revised slightly lower by around 12 tb/d in 2017, with all revisions taking place in 1Q17. The lower-than-expected data in OECD Americas due to slower gasoline demand necessitated a downward revision (+0.1 mb/d in 1Q17); this was partially counterbalanced by an upward revision (+50 tb/d in 1Q17) in OECD Europe as weather conditions turned out to be better than initially expected.

To reflect the most up-to-date data, OECD oil demand growth in 2016 was adjusted higher by 20 tb/d with the bulk of the positive changes attributed to the better-than-initially-expected oil demand growth in OECD Europe. Oil demand data in OECD Europe for 2016 outperformed initial projections, despite high taxation for oil and the high baseline of comparison of 2016. The low oil price environment and improving economic conditions across the region, with positive vehicle sales and colder weather conditions in 2016 were the major factors behind this upward adjustment. As a result, an upward adjustment of 58 tb/d was carried out. OECD Americas was adjusted lower (-45 tb/d in 2016), while OECD Asia Pacific was marginally (+7 tb/d). It is worth highlighting that the bulk of the positive upward adjustment for the OECD regions were seen in 4Q16 (+70 tb/d).

OECD Americas
The most recent monthly US oil demand data for February 2017 provided no surprises compared to previously available preliminary weekly data, which already implied a bearish picture.

Oil demand in February fell by approximately 0.5 mb/d or 2.4% as compared to the same month last year, due to various factors and in line with the slowing growth in the US economy in the 1Q. The bulk of oil demand losses were attributed to gasoline, whose requirements fell by 0.2 mb/d y-o-y, mainly as a result of the extremely high baseline registered in the same month last year. February 2016 experienced remarkable 0.6 mb/d growth, y-o-y, in gasoline demand, the highest monthly growth since May 1978. Distillate demand also fell, mainly as a result of unusually warm temperatures, both as compared to the historical norm, as well as y-o-y. Jet fuel requirements remained flat y-o-y, while residual fuel demand increased sharply and partly offset the overall losses.

Preliminary March and April 2017 data based on weekly figures show a return to an upward trend with industrial and, to some extent, road transportation fuels, notably distillates and motor gasoline, accounting for the bulk of these increases. While 2017 US oil demand remains strongly dependent on the development of the US economy, the risks continue to be rather skewed to the upside compared to last monthís MOMR, with the low oil price environment being a significantly influential variable. Trends in vehicle sales are in line with expected upward potentials, particularly the healthy growth of sport utility vehicles (SUVs) and pickup sales in 2016. Nevertheless, there are also some downside risks that may cap oil demand growth, such as fuel substitution and vehicle efficiencies.

The latest data for February 2017 showed overall declines in Canadaís oil demand, particularly for LPG and naphtha, partially as a result of fuel substitution. The overall declines have, however, been substantially offset by solid growth in demand for gasoline, jet/kerosene and diesel oil, in line with increasing industrial activities, colder temperature, vehicle sales, which were on an upward trend during the first two months of 2017.

The projection for 2017 Canadian oil demand remains unchanged, pointing towards an increase y-o-y.

In Mexico, March 2017 was another declining month for oil demand and was characterised by falling needs for LPG and gasoline, which have been partly offset by rising demand for the remaining petroleum product categories. Increases in demand for residual fuel oil, diesel oil and jet kerosene were particularly solid; for the LPG requirements decline, fuel substitution was the principal underlying factor, while the general economy stood behind bearish demand for gasoline.

In 2016, OECD Americas oil demand grew by 0.14 mb/d compared to 2015. In 2017, OECD Americas oil demand is projected to grow by 0.17 mb/d compared to 2016.

OECD Europe
European oil demand remained resilient during 1Q17 with implied growth of 0.13 mb/d, following solid demand in the previous years. The main reasons behind these latest positive developments are the improving economy in large parts of the continent, colder weather during 1Q17 and to some extent the low oil price environment. The road transportation sector accounts for the bulk of growth in oil usage and relates mostly to diesel oil, also being supported by continuing robust vehicle sales. The aviation sector also grew strongly in the region, lifting demand for aviation fuels, notably jet/kerosene.

Preliminary March 2017 Big 4 total oil demand data indicates, however, a decrease of around 0.07 mb/d y-o-y, with requirements for all main petroleum categories declining, except jet/kerosene. Within the Big 4, 2017 March oil demand grew only in Italy, as the UK, Germany and France showed falling oil demand, y-o-y.

The factor that could further amplify European oil demand in 2017 is the improving economy, which consequently would lift specific oil demand-related sectors, such as the industrial and transportation sectors. The latter of which relates closely to the regionís auto market, which has remained positive for almost three years. The general expectations for the regionís oil demand during 2017 have been revised upwards since last monthís projections with additional consideration for the risks pointing to the downside.

In 2016, European oil demand grew by 0.30 mb/d, while oil demand in 2017 is projected to increase by a lesser extent, by 0.08 mb/d.

OECD Asia Pacific
Japanís oil demand preliminary March 2017 figures, based on data from the Japanese Ministry of Economy, Trade and Industry (METI), decreased 3.8% y-o-y, with falling requirements in all the main product categories with the only exception being naphtha and jet/kerosene. Demand for the latter petroleum product category remained flat y-o-y. Oil requirements in crude and fuel oil for electricity generation continued to fall as a result of warmer weather in combination with fuel substitution with other energy commodities. Declining March 2017 oil demand was very much in line with the overall oil demand picture in 1Q17 and the developments in the countryís economy.

The outlook risks for 2017 remain skewed to the downside as a result of less optimistic economic forecasts and the likelihood that some additional nuclear plants in the country will restart their operations.

South Korea
In South Korea, February 2017 oil demand came up growing however, it was similar to January 2017 and substantially lower than the growth observed in 2016, which was only 0.02 mb/d, y-o-y. Flourishing petrochemical activities, which called for strongly increasing LPG requirements, were accompanied by big demand for petroleum products in the industrial and transportation sectors, notably diesel and jet/kerosene, but have been partly offset by declining residual fuel oil requirements. The risk for the 2017 South Korean oil demand outlook remains skewed to the upside compared to last monthís projections.

In 2016, OECD Asia Pacific oil demand grew slightly by 0.04 mb/d for the first time since 2012. This trend will, however, switch to the downside in 2017, expecting y-o-y declines by 0.02 mb/d.

Based on the latest available data, oil demand growth in non-OECD regions was revised slightly higher by around 12 tb/d in 2017, mainly in China (25 tb/d) partially offsetting the downward revision in Other Asia (- 12 tb/d), with all of the revisions falling in 1Q17. The better-than-expected demand for transportation fuels in China, along with the uptick in petrochemical feedstock usage, prompted the upward revision (0.10 mb/d in 1Q17). This was partially counterbalanced by the downward revisions in Other Asia (-50 tb/d in 1Q17) due to the slower oil demand growth in India on the back of the demonetisation policy. Reflecting the most up-todate data, oil demand growth in Non-OECD was adjusted higher by 45 tb/d for 2016 with the bulk of the positive changes attributed to better-than-initially-expected oil demand growth in Other Asia (+32 tb/d in 2016). The better-than-expected performances of India, Philippines, Singapore and Thailand, amongst most of the countries monitored in the regions, have positively contributed to these upward revisions in 2016 oil demand growth data.

Other Asia
Indian oil consumption exhibited slower-than-anticipated momentum in 1Q17 with March 2017 data illustrating declining oil demand requirements, marking the third consecutive decline. However, the magnitude of the decline eased from the sharp drops seen in the first two months of 2017. Oil demand in March declined by around 30 tb/d, improving from the average decline levels of January and February of around 0.17 mb/d, while total oil consumption in March reached 4.53 mb/d. Despite the overall decline, the product demand growth performance was mostly positive, with the exception of jet/kerosene and fuel oil, which dropped by 8% and 23%, y-o-y, respectively.

Demand for LPG and gasoline were in the positive territory in terms of growth, while diesel oil was chiefly flat. LPG continues to be encouraged by the residential sector as LPG supply expansion projects to households remained the driving supporter for LPG requirements in India. However, growth was moderated from the level seen in previous months as the baseline started to negatively impact growth levels. LPG rose by 13 tb/d, or just below the 2% y-o-y. In contrast, jet/kerosene continued to lose ground to LPG as a major household fuel in India, declining for the seventh consecutive month, and it is not expected to show any significant increase in the near future. Gasoline increased by 17 tb/d, or slightly less than 3% y-o-y, encouraged by lower retail prices as well as the continuation of healthy two-wheeler sales, which consume gasoline as fuel. According to the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales grew by more than 10% to reach 282,500 units in March, up from 256,900 units in the same month of last year. Additionally, two-wheeler sales also increased marginally, adding around 0.3% y-o-y. However, motorcycle sales dipped by around 3.3% to reach 915,200 units. Diesel oil registered a modest rise in March, the first increase in 2017, up by 0.3% y-o-y. Support stemmed from the construction sector as the performance improved after the sharp hit from the demonetisation policy, at the end of 2016. Fuel oil demand growth also decreased in March 2017, recording the third consecutive decline. This decline was a result of lower-than-anticipated consumption in the power sector as well as the higher baseline of comparison. Demand for the product declined by around 73 tb/d y-o-y.

In Indonesia, the latest available February 2017 data highlighted an overall increase of around 15 tb/d, or 1% y-o-y. Demand for transportation fuels were on the rise during month and provided support to increasing oil requirements in Indonesia. Jet /kerosene and gasoline both increased, adding around 17% and 3% y-o-y, respectively.

Going forward, risks for Other Asiaís oil demand in 2017 remain balanced as a result of improving economic activities of the biggest oil consumer in the region, India, and the general steady economic performance of some countries in the region.

Other Asiaís oil demand increased by 0.57 mb/d in 2016 and by 0.33 mb/d in 2017.

Latin America
Brazilís oil demand grew during March 2017, rising by 2% compared to the same period in 2016. The increase was led by LPG, gasoline and diesel oil, which rose by around 6.0%, 5.7% and 2.1%, respectively.

Demand for gasoline was stimulated by cheaper gasoline retail prices relative to ethanol, shifting driversí preferences to consume gasoline. Diesel oil demand growth also increased by around 20 tb/d on the back of improvements in the manufacturing PMI of the country, which, despite remaining in contraction, registered the highest reading of 49.6, up from Februaryís 46.9. Additionally, the lower baseline of comparison also played a role in signalling the gains recorded during the month of March. On the other hand, jet/kerosene and fuel oil demand eased, falling by around 2% each. This could be a result of slower business confidence in the aviation sector and positive developments in hydropower generation, limiting fuel oil consumption in the country.

Oil consumption in Argentina was flat during the month of February 2017, despite sharp positive and negative gains in the product categories. While jet/kerosene and LPG recorded sharp gains of 13% and 7%, respectively, fuel oil and diesel oil declined by 39% and 1% y-o-y, respectively.

Going forward, risks for 2017 oil demand growth in Latin America are leaning to the upside, mainly due to expectations for improved economic conditions in Brazil. On the other hand, negative notions could result from slower-than-expected development of the overall economy in the region, as well as unexpected weather conditions, which could limit the potential for oil demand growth.

Latin American oil demand declined by 90 tb/d in 2016. During 2017, oil demand growth is forecast to rise by 60 tb/d from the levels seen in 2014.

Middle East
Saudi Arabia
In Saudi Arabia, March 2017 oil demand returned to a declining trend as oil demand dropped sharply by 0.24 tb/d or 10% y-o-y, with total oil demand reaching around 2.13 mb/d. On a cumulative basis from January to March, oil demand growth in Saudi Arabia was also in the negative with a decline of 0.12 tb/d, or around 6% y-o-y. Mixed performances were exhibited amongst the product categories, products linked to the power generation sector Ė namely crude oil for direct burning and fuel oil Ė fell sharply in the negative, while other fuels were in positive territory, including transportation fuels. Substitution with natural gas, particularly after the commencement of Wasit gas plant, has caused a sharp drop in direct burning of crude, by more than 92 tb/d, which equates to close to 23% y-o-y, pressuring the overall consumption figures of the country. Total demand for direct crude for burning was at 0.31 mb/d in March. Fuel oil recorded a similar trend as the product declined by around 22% y-o-y due to less power generation consumption during colder weather when air conditioning is less needed. Furthermore, diesel oil also declined, dropping by around 15% y-o-y, as a result of less consumption in the transportation and industrial sectors. On the other hand, LPG, gasoline and jet/kerosene increased during the month by around 11%, 7% and 9% y-o-y, respectively.

Going forward, oil demand growth in the Middle East faces a number of challenges, the largest being linked to substitution with natural gas as well as partial subsidy removal in Saudi Arabia, along with governmental programmes geared towards expanding the alternative fuels base. On the other hand, developments in economic activities in various countries in the region should lend support to oil demand growth in 2017.

For 2016, Middle East oil demand was rather flat, while oil demand in 2017 is projected to increase by 0.11 mb/d.

In China, based on preliminary data, y-o-y growth in oil consumption remained firm at around 0.5 mb/d in March 2017, posting the third consecutive solid growth since the start of 2017. The bulk of this growth continues to be focused on the transportation and petrochemical sectors.

Jet fuel demand surged in March, rising by around 0.17 mb/d or more than 6% y-o-y. Jet fuel demand was buoyed by air passenger traffic during the Qing Ming holiday, in addition to the increase in per capita income levels, allowing for a rise in domestic tourism. Furthermore, gasoline showed positive growth, with demand increasing by more than 70 tb/d compared to the same period in 2016. This level of growth is sharply lower than the average of the first two months of 2017 when oil gasoline demand growth hit around 0.16 mb/d y-o-y. The preliminary cause of this moderation in gasoline consumption is decreased driving during the driving ban in northern China at the beginning of the month, which consequently improved slightly towards the end of March as the Qing Ming holidays supported the increase in driving activities.

According to the China Association of Automobile Manufacturers (CAAM), sales of passenger cars reached 2.1 million units in March, increasing by 1.7% y-o-y. For 1Q17, the sale of passenger cars was around 5.9 million units or 4.6% higher, y-o-y. As for passenger cars by type, SUVs still demonstrated solid growth with sales up by around 21% y-o-y. Multipurpose vehicle (MPV) sales witnessed a decline of around 17% y-o-y. In the petrochemical sector, LPG consumption, specifically propane, rose by around 12% in March, compared to the same month in 2016, implying healthy demand in the petrochemical sector.

Although diesel consumption was slower at the beginning of March as the government announced driving and industrial bans and prohibited transportation of hazardous materials, demand for diesel picked up in the second half of March, encouraged by an increase in agricultural activities.

Going forward, the consumption outlook in China for the remainder of 2017 continued to be balanced. Downside risks are linked to slower industrial activities as well as a speed-up in policies encouraging reductions in transportation fuels. On the other hand, the expansion in the petrochemical sector, especially in PDH plants and expansion projects in the refinery sectors, provide upside potential for Chinaís oil demand growth.

For 2016, Chinaís oil demand grew by 0.31 mb/d, while oil demand in 2017 is projected to increase by 0.34 mb/d.

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