Global oil product demand expected to grow by 1.6% per year

In its Medium term Oil Market Report, the (Paris-based) International Energy Agency (IEA) says that global oil product demand is expected to grow by 1.6% per year on average over the next five years, rising from 86.9 mbd in 2008 to 94.1 mbd in 2013. The pattern of growth is diametrically opposed to the trends in supply, with the growth dragged down by slower GDP growth in 2008 and 2009, before returning to trend levels in 2010 and beyond.


The IEA says that high oil prices are clearly affecting consumer behaviour, particularly in the OECD transportation sector, with a visible switch away from SUVs and light trucks in the U.S.


Demand growth remains heavily concentrated in developing countries, where total consumption will nearly reach parity with mature economies by 2015. Within the non-OECD, growth is highly concentrated in three regions – Asia, the Middle East and South America, accounting for nearly 90% of global demand growth over the next five years. Of this, China and India account for almost half. By contrast, demand growth in OECD countries is expected to contract slightly over the next five years.


Over the next 18 months there appears to be the potential for a modest build in the supply cushion due to the combination of weaker economic growth and a concentration of new projects in OPEC and non-OPEC countries coming on line. However, the annual rate of expansion drops off considerably from the 1.5 - 2.5 mbd seen through to 2010 to under 1 mbd at the tail end of the IEA forecast, just as global economic growth is forecast to pick up again. It is also worth noting that the lion's share of non-OPEC

growth comes from condensates, NGLs and biofuels, with only a very limited contribution from non-OPEC crude supply. As a result, effective OPEC spare capacity temporarily rises above 4 mbd in 2009 and 2010, before receding to minimal levels by 2013.


There are significant downward revisions for both non-OPEC supplies and OPEC capacity estimates from last years Medium-Term Oil Market Report (MTOMR).


Global inter-regional crude oil trade could rise by 2.5 mbd between 2008 and 2013, equating to around 1.5% annual compounded growth. The 1.8 mbd downward revision to crude trade from last year is largely driven by the lower demand forecast, which reduces the call on oil imports from the Middle East. China will drive crude trade, with imports possibly rising from current volumes of around 4 mbd to as much as 5.7 mbd in 2013. Although export prospects from the Middle East are lowered, they may still rise from 16.0 mbd in 2008 to 17.5 mbd in 2013 and will be supplemented by rising condensate exports, probably heading east.


Biofuels continue to add significant growth to the supply forecast, rising from 1.35 mbd in 2008 to 1.95 mbd by 2013. Although significant capacity additions have been proposed for the next five years, the IEA maintains a cautious stance on future growth held since 2006. It is clear that biofuels have helped to diversify energy supply. Compensating for the additional supplies that have been met through ethanol and biodiesel supply growth in Europe and the U.S. since 2005 would require one mbd of crude oil to be processed.


Given the link between high crude prices and tight product markets, the refinery outlook is extremely important for both product supply and crude oil prices. This report sees 8.8 mbd of crude distillation capacity being added to the refinery system between 2008 and 2013 – greater than projected upstream crude capacity additions but only really having a significant impact on product supply at the tail-end of the forecast. 



Regionally, refinery capacity growth is concentrated in China, other Asia and the Middle East, with the three segments accounting for roughly a third of new distillation capacity additions. Considerable investment is also taking place in upgrading capacity and desulphurisation units to try to meet the challenge of the concentration of demand in transportation fuels and weak fuel oil cracks.


Contact: Erik Ranheim