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Sunday, December 17, 2017

Oil demand revised downwards again

Oil demand revised downwards again

 

This week the International Energy Agency (IEA) in Paris again revised downwards its projection for the increase in world oil demand in 2006/7. Oil demand is now projected to grow by 1.03 mbd in 2006 (its previous forecast was 1.09 mbd growth) to 84.6 mbd, and by 1.45 mbd in 2007 (its forecast was 1.54 mbd growth) to 86.02 mbd (its forecast a month ago was 86.22 mbd).

 

The IEA says that the latest International Monetary Fund (IMF) economic outlook portrays a relatively buoyant global economy despite anecdotal signs of a U.S. slowdown. Overall, the economic picture argues for close-to-trend global oil product demand in 2007. Taking into account the IMF economic outlook, coupled with downward revisions in North America, the IEA foresees oil demand growing by +1.2% in 2006 to 84.6 mbd, and by +1.7% in 2007 to 86.02 mbd.

 

The relentless rise of transportation fuel prices (gasoline, jet fuel, diesel and bunkers), coupled with benign weather conditions (no hurricanes and mild temperatures) and lower natural gas prices, has arguably contributed to moderate growth this year. The picture, however, is blurred given the significant differences that can be observed across the regions. For example, many small Asian countries were forced to abandon costly subsidies, thereby smothering domestic demand, while other big consumers are reluctant to curb their own consumption for domestic political reasons.

 

The IEA expects oil demand in 2007 to be pulled up by strong non-OECD consumption, particularly from China (for which the IMF just raised its GDP growth forecast over 2007-2011 to roughly 9.5% per year on average). Although OECD consumption accounts for almost 60% of worldwide demand, over 80% of global demand growth is attributable to non-OECD countries (according to 2005 data). This reflects ongoing structural changes in the world economy, since several non-OECD nations will be among the largest economies in the medium term. Moreover, most of these economies are generally much more energy-intensive per unit of GDP.

 

Increases in world oil demand (in mbd) since 1995

 

Year

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

USA

0.01

0.58

0.31

0.3

0.6

0.18

-0.05

0.11

0.27

0.7

0.04

0.02

0.34

China

0.24

0.28

0.26

0.11

0.37

0.57

0.05

0.3

0.55

0.88

0.17

0.42

0.39

Rest world

1.05

1.03

1.23

0.29

0.63

-0.15

0.71

0.19

0.73

1.6

0.9

0.59

0.72

Total

1.3

1.9

1.8

0.7

1.6

0.6

0.7

0.6

1.55

3.18

1.11

1.03

1.45

 

 

Note in this table that about half the growth in world oil demand in 2007 will come from China and the U.S., while 24% will come from the Middle East.

 

In its short term outlook projection the Energy Information Administration (EIA) in Washington expects U.S. net petroleum imports in 2007 to decline by 0.4% to 12.13 mbd, despite a demand increase of 1.7% to 21 mbd. The oil price is expected to remain high due to a continued tight oil market.

 

The second most populous country in the world, India, is not increasing oil demand significantly despite a strong economy. The low oil demand in India, combined with increased refinery capacity, is resulting in a significant product surplus, which is being exported. According to the Indian Ministry of Oil, India is expected to increase product exports from some 0.4 mbd today to 1.9 mbd in 2012. At the same time, Indian oil demand is expected to increase by 3%. In total this situation will result in an increase in crude oil imports from 2.3 mbd in 2007/08 to 4 mbd in 2012.

 

The distance from the Middle East to India is relatively short and this increased oil trade will only require some 10 VLCCs. India also takes oil from West Africa and if the whole increase in oil imports was taken from Bonny (Nigeria), this would require some 38 VLCCs. If the increased product exports go to Europe and the U.S. this situation may mean strongly increased product tanker demand. We may be entering a period of structural change in the tanker markets.

 

Looking at the biggest oil consumption areas, crude oil imports to Europe during the first half of 2006 (13.8 mbd) were 3% below that of last year. Imports to the U.S. (10.1 mbd until end Sept) and to Japan (4.3 mbd until Aug.) are at about the same level as in 2005. Product imports to Japan remain flat at about 0.6 mbd, whereas they have increased from 5.0 mbd in 2002 to 6.2 mbd in the first part of 2006 both in Europe and the U.S.

 

Contact: Erik Ranheim