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Wednesday, December 13, 2017

Cautiously positive demand outlook

In its medium term oil market report, the Paris-based International Energy Agency (IEA) forecasts global oil product demand to expand by 1.9 mbd or 2.2% per year on average, reaching 95.8 mbd by 2012. Overall growth is driven by the stronger oil demand growth in non-OECD countries, particularly in Asia and the Middle East, where demand will grow more than three times faster than that of the OECD economies. OECD oil product demand is expected to rise from 49.6 mbd in 2007 to 52.1 mbd in 2012, driven by transportation fuel demand growth in North America, where consumption is poised to grow twice as fast as in Europe or the Pacific. In contrast, non-OECD oil product demand is poised to increase by, on average, 1.4 mbd or 3.6% per year.

 

Transportation fuels will account for the bulk of demand growth in both OECD and non-OECD countries. These fuels will represent about 60% of the rise in non-OECD demand. China is the key to demand growth in Asia. In 2004, about 74% of Asian demand growth came from China; in 2005/6, around two-thirds of the incremental growth came from China. IEA expects China’s oil product demand to grow at 5.6% per year between 2007 and 2012. Some 55% of the increase in world oil demand is projected to come from China, the U.S. and the Middle East.

 

Strong economic growth has benefited shipping but high economic growth rates do not always translate into high oil demand growth. Oil product demand growth in India has been lacklustre despite record GDP growth rates of above 8% per year. Japan will be the main cause of the slowing down of the Asian oil product demand growth picture. Japan’s demand will fall by at least 0.7 mbd between 2007 and 2012.

 

Half the increase in oil supply is assumed to come from non-OPEC countries, with the biggest coming from Brazil (+1.05 mbd) and the former Soviet Union (+1.74 mbd of which Russia 0.58 mbd). Biofuels are assumed to represent 0.66 mbd of the increased supply. Oil production in Europe is assumed to decline by 1.27 mbd, which will mean more imports. All in all the outlook for tanker demand looks cautiously positive, but the increase in demand is concentrated in only a few areas and it will be important to watch a few critical factors. Part of the increased demand in the U.S. will probably be met by biofuels and increased supply from Canada. Part of the increased demand in China will probably be met by increased imports from Russia via a new pipeline that is projected to come on stream next year. This could mean that the entire increase in Chinese demand for one year may come via this pipeline.

 

Supply, the IEA calculates, will not be able to keep pace with demand. Nations outside the Organisation of the Petroleum Exporting Countries are expected to add about one per cent to supplies per year. That puts most of the burden on OPEC, in particular Saudi Arabia, which would face capacity constraints itself.

 

Contact: Erik Ranheim