World Oil Demand - March 2016

Source: OPEC_RP160306 3/14/2016, Location: Europe

World oil demand grew by 1.54 mb/d in 2015, unchanged from previous monthly report, to average 92.98 mb/d despite adjustments based on the most up-to-date data from regions around the world.

In 2016, world oil demand is anticipated to rise by 1.25 mb/d to average 94.23 mb/d, unchanged from previous month’s report. Some upward revisions were considered in Other Asia, Asia Pacific and Europe due to better-than expected oil demand data. While some downward adjustment comes from weaker-than-expected oil demand data and a slower economic outlook for Latin America and FSU.

OECD Americas
The most recent monthly US oil demand data pertains to December 2015 and implies y-o-y gains in oil requirements of around 0.1 mb/d, or 0.5% y-o-y, on an overall robust 3Q15 despite decreasing in October and November 2015. Monthly data for December 2015 reversed its downward trend and dispelled gloomy expectations, which had been based on preliminary weekly data and implied shrinking oil demand.

December 2015 growth was largely attributed to transportation demand, especially road transportation. Gasoline demand was once more supported by continuing low fuel prices and robust auto sales, showing a growth of 9% y-o-y in December and making 2015 out to be the strongest year in US auto sales since 2000. Gasoline demand increased by more than 0.2 mb/d or 2% y-o-y.

During December 2015, distillates fuel demand fell strongly, 9% lower y-o-y, mainly as a result of warmer-than-expected weather compared both with the previous year and the historical norm. This was in line with an expanding US economy. Jet fuel and residual fuel oil also showed gains y-o-y.

The overall 2015 picture shows solidly growing US oil demand, which is dominated by rising gasoline and jet fuel requirements, in combination with declining distillate fuel demand.

Preliminary weekly data implies bullish oil demand in January and February 2016, with strong growth in gasoline and jet fuel requirements that is more than offset by sluggish distillate demand (mainly as a result of the overall mild winter). The picture of US oil demand seems to be also in line with the country’s economic performance. The development of 2016 US oil demand remains strongly dependent on the US economy and fuel oil prices, with risks remaining balanced between the upside and the downside as compared to last month.

In Mexico, January 2016 came up decreasing and was characterized by shrinking oil demand in all main petroleum product categories, with the exception of diesel and LPG. For the whole of 2015, oil demand in Mexico was declining, with the majority of product categories in negative territory, particularly residual fuel oil which saw the largest decline. The only exception was seen in gasoline requirements, which grew.

The latest December 2015 Canadian data showed falling oil requirements, notably in gasoline, LPG and residual fuel oil requirements.

In 2015, OECD Americas oil demand grew by 0.26 mb/d compared with a year earlier. For 2016, OECD Americas oil demand is projected to grow by 0.29 mb/d compared with the previous year.

OECD Europe
The latest available and partly preliminary data for the European Big 4 oil consuming countries in January 2016 displays a slightly decreasing trend y-o-y. Data showed a decline of 50 tb/d or around 1% y-o-y. Gains in requirements for diesel oil and fuel oil have been more than offset by losses in demand for jet fuel/kerosene and LPG. The year 2015 closed showing an increase for the whole region of around 0.27 mb/d with the bulk of gains seen in the 1Q15 of the year and with continuous improvement thereafter.

Nevertheless, there is considerable uncertainty for 2016, as there are a number of factors pointing in opposite directions. Expected improvements in the economy and the current low oil price environment could provide support to oil demand, though unsolved budget deficits in several countries – and policies aimed at increasing fuel taxation – pose substantial downside risks. Nevertheless, the current oil demand picture is in line with leading indicators such as increasing industrial production and rising car sales. The latter has seen an increase for 29 months in a row. In fact, passenger car sales grew around 6% y-o-y in January 2016 for the largest part of the region. The expectations for 2016 oil demand in the region, however, remain unchanged since last month. The downside risks seem to be balanced by the continuing low oil price environment and the fact that the economies of most countries seem to be improving. However, there are also some significant downside risks that are directly related to the economies of some countries during 2016.

In 2015, OECD Europe oil demand grew by 0.30 mb/d, while oil demand during 2016 will basically rise marginally from the previous year.

OECD Asia Pacific
Japanese oil demand decreased by 0.2 mb/d y-o-y in January 2016. The only petroleum product category with y-o-y gains was naphtha. This was a result of increased usage in the petrochemical industry. Demand in all other petroleum product categories shrank, particularly for LPG and residual fuel oil. Oil requirements in crude and fuel oil for direct burning as well as electricity generation fell for another month as a result of substitution with other commodities and warmer weather during January 2016. For the whole of 2015, Japanese oil demand fell by 2% y-o-y, with naphtha being the only product in positive territory.

The outlook risks for 2016 indicate that Japanese oil demand remains slightly skewed to the downside and could be determined by the development of the country’s economy, as well as the re-activation of some of the country’s nuclear plants during 2016.

In a strong start for 2016, and in continuation of the solid oil demand seen during 2015, South Korean oil demand recorded robust growth during the month of January, rising by more than 0.11 mb/d or around the 5% y-o-y. South Korea recorded substantial growth levels in 2015 with more than 0.13 mb/d.

Delving into products, diesel demand led growth in January 2016, rising by around 0.05 mb/d, or 12% y-o-y, mainly feeding into the transportation sector as the market share of diesel vehicles in the country continued to post good data. In 2015, diesel vehicles increased by around 9% in contrast to gasoline-powered vehicles which rose by only 3%. Another positive contributor to oil demand growth in South Korea was fuel oil, which recorded a y-o-y rise of around 0.05 mb/d or a bullish 45%. Increased demand from the bunkering and power generation sectors supported an increase in demand for the product. On the other hand, naphtha demand recorded a decline for the first time since mid-2015 with a decline of around 0.06 mb/d, or 5% y-o-y, mainly as a result of the unplanned outage of petrochemical units.

Generally, South Korea holds a positive picture going forward, particularly as most assumptions – i.e. economic development as well as the expansion in the petrochemical and transportation sectors – seem to be pointing to the upside.

2015 OECD Asia Pacific oil consumption shrank by 0.06 mb/d. The downward trend will continue also in 2016 with a decline of 0.10 mb/d.

Other Asia
Indian oil consumption started 2016 on a solid note. Oil demand in January showed massive growth of more than 0.50 mb/d, which is roughly around 13% y-o-y, with total consumption remaining around 4.54 mb/d. This rise was led by strong demand for gasoline, fuel oil and diesel oil.

Indian gasoline demand rose in January, maintaining December’s healthy growth levels of more than 50 tb/d. Gasoline demand increased by more than 50 tb/d, or around 11% y-o-y, in January. This was largely in line with the expected impacts of expanding twowheeler sales in the country. With domestic sales of more than 1.3 million units in January, two-wheeler sales recorded a rise of around 3% y-o-y, despite subdued overall car sales, marginally growing at around 1% y-o-y. A similar trend could be seen in fuel oil demand, along with an apparent lift in utility requirements for power generation, which increased by more than 50 tb/d or around 14% y-o-y.

Continuing with the positive momentum, diesel oil jumped by more than 0.12 mb/d or around 8% y-o-y. The ban on diesel trucks and large cars in main areas of the country seemingly had no impact on demand for diesel – at least during the month of January. Demand was obviously spurred on by overall developments in the economy, specifically in the manufacturing sector. Demand growth for diesel is anticipated to be elevated going forward as expectations for the economy remain positive, encouraging the manufacturing and construction sectors.

Total consumption of LPG remained above 0.60 mb/d, beating the seasonal norm in which demand for the products tends to ease, especially at the beginning of the year. LPG was higher by 25 tb/d or 4% y-o-y.

Total products demand in India is anticipated to grow by around 180 tb/d, or 4%-5%, in 2016, mainly as a result of better economic conditions in the country. This will promote steady growth for diesel oil and gasoline.

Indonesian oil consumption inched up during the month of December 2015. Product demand registered a rise of 40 tb/d from the levels seen in December the previous year, which equates to around 3% y-o-y. Total demand consumption for the country stood at 1.41 mb/d. The rise in oil consumption can be mainly attributed to better-thanexpected data in the manufacturing sector as well as in transportation sectors.

Cumulative data for the whole of 2015 hints towards flat performance, with oil demand growing by a mere 4 tb/d from a year before.

In Taiwan, total consumption growth for the month of December 2015 averaged 21 tb/d, or more than 2% y-o-y, and was supported by most products, with fuel oil and diesel oil rising the most. Cumulative data for the whole of 2015 indicates that oil consumption was 13 tb/d higher, or more than 1% y-o-y, than year ago levels.

Looking forward, the risks for 2016 in Other Asian oil demand growth are currently expected to be skewed to the upside as the outlook for the Indian economy suggests stable to improving economic activities. Transportation fuels are expected to be the main providers of growth. In other countries in the region, factors such as subsidies on transportation fuels, and the degree of their reduction, may influence oil demand growth. However, the lower international prices at this stage should moderate the impact of this.

Other Asia’s oil demand grew by 0.43 mb/d in 2015. As for 2016, oil demand is forecasted to remain firm, hovering around 0.36 mb/d. However, this is lower than the levels seen in 2015.

Latin America
Brazilian oil demand had a sluggish start in 2016 with oil demand dipping by more than 0.3 mb/d y-o-y. This was in line with weakening macroeconomic data. This has brought total consumption in Brazil down to 2.13 mb/d.

Declines were witnessed across all products, with fuel oil, diesel oil and gasoline weakening the most. Fuel oil demand declined by more than 22 tb/d, or more than 22% y-o-y, to reach total consumption of 76 tb/d in January. Consumption declined in January 2016 on a high base line effect, which had shown high fuel demand in January 2015, due to persisting drought conditions increasing the use of fuel oil to compensate for a reduction in hydroelectric power generation. Additionally, deteriorating economic factors contributed negatively to fuel oil demand numbers as less consumption was seen in the power generation sector and in the use of fuel oil in as a bunker.

Diesel oil demand was lower by a massive 0.16 mb/d, or around 17% y-o-y, registering the deepest decline since 2000. Potential diesel oil demand growth appeared to be waning at this stage as supporting economic factors disappeared. The industrial sector recorded sluggish numbers, which were coherent with poor manufacturing activities.

Similarly, gasoline demand dropped sharply, declining by 0.11 mb/d or around 14% y-o-y. Gasoline declined despite being economically more viable for consumers than ethanol as the economics for ethanol consumption weakened in January. Ethanol demand also decreased by around 8 tb/d, or 3% y-o-y, as prices increased and as ethanol reduced its competitiveness to gasoline.

Oil consumption in Argentina was slightly in the positive territory during the month of December 2015. However, it recorded a significant rise for 2015 on a cumulative basis. Oil demand increased in the country by around 30 tb/d or more than 4% y-o-y in 2015.

On a cumulative basis, all transportation fuels were in positive territory, with gasoline and diesel oil rising around 6% and 5% y-o-y, respectively. Fuel oil also recorded significant progress in 2015, adding some 20% from the levels witnessed in 2014. Total consumption reached 0.69 mb/d in 2015.

Looking forward, the risks for oil demand potentials for 2016 are currently skewed to the downside, with economic conditions in Brazil – and other countries in the region – anticipated to weaken and as government spending on projects is anticipated to be reduced. The Olympic Games in Brazil in August 2016 are currently the only bright spot in the region, with demand for transportation fuels projected to provide support towards the end of 2Q16 and 3Q16. On the other hand, the presence of lower oil prices, in addition to unusual weather conditions in the region, should support demand for power generation.

Latin American oil demand declined by 8 tb/d in 2015. During 2016, oil demand growth is forecasted be slightly higher than 2015 to record growth of 51 tb/d.

Middle East
In 2016, Middle East oil consumption is expected to remain steady, increasing by 0.18 mb/d from its 2015 levels.

Saudi Arabia is seen as being the main contributor to this growth, contributing to a rise of 0.10 mb/d, despite flat oil demand growth numbers in January 2016. All products were on the rise, with the exception of fuel oil and the “other products’ category, both of which declined sharply. Fuel oil demand was lower on a y-o-y basis. This was possibly a result of lower product usage and less burning fuel for power generation, in line with seasonal norms. Demand from the power generation sector slowed down, which is usual going into the winter season, as consumption requirements for air conditioning usage declined. Another factor is the reduction of subsidies for electricity in the residential and industrial sectors, which might have some impact on the numbers.

Nevertheless, it is too early to determine if this is the case or not. On the other hand, consumption for direct crude burning rose by more than 17 tb/d, or around 6% y-o-y, but stayed far below the 4Q15 average of around 0.1 mb/d. Transportation fuels grew robustly on the first complete month of data after the government announced a reduction of subsidies. Jet/kerosene, gasoline and diesel oil have all registered firm gains, increasing by 30%, 9% and 4% y-o-y, respectively.

Cumulative data for 2015 indicates a slightly-lower-than-expected growth in the country, with an increase of around 0.12 mb/d, or more than 9% y-o-y, as compared to the initial expectation of 0.14 mb/d growth.

Other countries in the region showed positive performances in January 2016. Oil demand in Iraq increased by more than 6% y-o-y, as did consumption in UAE, Kuwait and Qatar. Going forward, Middle East oil demand will be subject to the performance of various economies in the region, with the impact of lower oil prices on government spending plans to be closely monitored. The impact of a reduction in subsidies is also an important factor to monitor going forward, with most countries in the region having reduced subsidies.

For 2015, Middle East oil demand grew at around 0.21 mb/d, while oil demand in 2016 is projected to increase by 0.18 mb/d.

Chinese oil demand is back to growth figures in January 2016 after two months of declines. Demand growth for the country registered growth of around 0.3 mb/d as compared to January 2015. In absolute figures, total oil demand for the country stood at 10.68 mb/d.

Oil demand growth was determined by increases in jet/kero, LPG and gasoline, each rising by around 11%, 10% and 7% y-o-y, respectively. On the other hand, fuel and diesel oil consumption dropped, shedding around 18% and 3% y-o-y, respectively. It is worth mentioning that due to the Lunar New Year holiday and delays in the publication of official data, all analyses were based on preliminary data.

Jet/kero total consumption is now estimated to be at 0.63 mb/d, up by 60 tb/d. This was boosted by domestic air travel and the Lunar New Year travel season, despite some economic growth concerns in the country. Direct network connections increased by around 8% in 2015, lending support to healthy air travel demand growth.

LPG demand hit total consumption of around 1.14 mb/d, increasing by around 0.1 mb/d. This was not only supported by an expansion in capacity of propane dehydrogenations but also by household usage as weather conditions turned out to be colder-than-anticipated in parts of the country where LPG is consumed as a heating fuel.

Gasoline growth continued to grow robustly in January 2016, adding some 0.19 mb/d to reach total consumption of 2.76 mb/d. Demand was supported by additional driving ahead of the Lunar New Year holiday as well as car sales data which continue to grow based on initial sales data. Chinese car sales reached a new high in 2015, rising by around 7% y-o-y to 21.2 million units. For 2016, the China Association of Automobile Manufacturers expects car sales to rise by around 8% y-o-y to 22.8 million units. Car manufacturers have built factories with associated facilities in China to increase production and to take advantage of the demand being created by an expanding middle class and rapid urbanization.

Consumption of fuel oil largely reversed its earlier trend as initial data seemed to suggest a decrease in growth of around 0.1 mb/d y-o-y. Slower industrial and manufacturing activities, as well as less consumption from teapot refineries, appear to be the largest contributors to this slowdown. Similarly, diesel oil consumption decreased by around 90 tb/d, which was mainly in line with slower manufacturing activities. Based on the latest economic data, the official Purchasing Managers’ Index (PMI) for manufacturing fell to 49.4 in January from 49.7 in December 2015, which largely contributed to the lower demand for diesel oil.

China ended 2015 with very solid oil demand growth data, driven mainly by LPG feeding into the growing petrochemicals sector, as well as gasoline supported by lower oil prices and robust car sales.

For 2016, the outlook is currently balanced between positive and negative risks. The downside risks are concentrated on a probable weakening in the economic environment as well as on policies encouraging a reduction in the consumption of transportation fuels. In contrast, the upside risks are mainly posed by growth trends in the petrochemicals sector and expansion projects in the refinery sectors, which offer plenty of potential for growth in Chinese oil demand.

For 2015, Chinese oil demand is anticipated to grow by 0.33 mb/d, while oil demand in 2016 is projected to increase by 0.29 mb/d.

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