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Tuesday, December 12, 2017

Oil market powered by demand growth rather than OPEC supply restraint

In last week’s Weekly NEWS we reported that European crude oil imports have remained quite stable at about 12.4-12.7 mbd during the last few years, but that during the first quarter of 2004 crude oil imports were 13.08 mbd, up 2.5% on the first quarter in 2003.

This growth is confirmed by the 28 June Petroleum Intelligence Weekly (PIW). Although not all these imports were seaborne, more than 60% of the imports came from Norway, UK and OPEC. Although imports from the UK and Norway are short-haul, 37% of the imports were longer-haul imports from OPEC members. This increase in European oil imports has also been satisfied by imports from the FSU (pipeline and Baltic/Black Sea exports) as well as from OPEC. These additions to tanker tonne-miles are good for the tanker business.


PIW reports a 4.5% year-on-year growth in world oil demand for the period April-May 2004, which is the highest rate seen in 25 years. Not surprisingly, China tops the list with 20.8% growth. Brazil (+14.4%) and India (+10.8%) follow. Rather unexpectedly Europe is high on the list with 6% growth. By comparison US growth was lagging behind at 3.1%.

PIW takes this growth in European oil demand as a sign of the broadening of economic recovery to oil-using sectors of the European economy. Although some slowing for the rest of the year seems likely, European oil demand growth could even outpace the US this year, with a projected 2.4% increase compared to 2.1% for the US.

One reason oil demand is growing despite high crude oil prices is that these prices are historically not high if adjusted for inflation. Furthermore, end-users of refined products, especially gasoline and diesel, have yet to feel marked real price increases as the value of the dollar has weakened against the Yen, the Pound Sterling and the Euro. For example, European gasoline prices in national currencies including taxes are up about 10-11% in May 2004 compared to May 2003 while in dollar terms they have increased by 14-15%. Over the same period, Japanese gasoline prices in Yen are up 3.8%, while they are up 8.7% in dollar terms. US gasoline prices (which are only marginally taxed and therefore show any oil price-driven price increase more clearly) are up 31.6%.

OPEC, and in particular Middle East OPEC countries, has so far been able to come up with the extra oil demanded. The spotlight is now on OPEC’s ability to produce more oil if needed. PIW reports that although OPEC production capacity is due to rise by 1 mbd by the end of 2004, it remains to be seen how much of that will be genuine additions to capacity rather than offsets for natural declines at ageing oil fields. The biggest gains (0.65 mbd in Saudi Arabia) are not intended to raise sustainable capacity there and the current theoretical maximum OPEC capacity of nearly 32 mbd is substantially lower than the 39 mbd of 1979.

OPEC production and capacity in tables and graphs are available here.

The graph below outlines the OPEC spot tanker liftings in million barrels per day in the period January 2002 to May 2004. The increase in spot liftings PG-East can clearly be seen, but lately PG-West spot liftings have increased too. (Source of figures: OPEC).


 

US, European and Japanese crude oil and oil product imports are available in tables and graphs at the following link.

Contacts: Erik Ranheim  or Jan Svenne