Various economic developments worldwide are almost offsetting each other, leaving the total oil consumption picture nearly unchanged from last month. US demand is weakening further due to a sluggish economy, the European economic turbulence is suppressing that continent’s demand, and Indian demand is negatively affected by the recent massive floods. In contrast, the shutdown of most of Japan’s nuclear power plants has led to   the excessive use of crude and fuel oil-burning. The first half of this year has witnessed various economic developments worldwide which have created much uncertainty about oil demand. And the second half of the year may experience similar uncertainty, since the world economy is in an uncertain state. US and European demand will contribute the largest share of the uncertainty. Hence, world demand prospects in the second half will remain vague. While these two regions are squeezing down oil demand, other, non-OECD regions’ demand is pushing for more consumption.
Furthermore, the Japanese shutdown of its nuclear plants is leading to more fuel- and crude oil-usage in the power sector. Nevertheless, should the country decide to bring its nuclear power plants back into full-scale service, the country’s excessive oil usage would slow dramatically.
Given the current global situation, world oil demand growth is forecast at 0.9 mb/d year-on-year (y-o-y) to average 88.7 mb/d.
OECD — North America
The latest easing of oil prices coincides with the beginning of the summer. Should the current price levels be maintained across the summer, then this, of course, would have a positive effect on gasoline consumption in the US. Nevertheless, a possible economic setback would, to a certain degree, push the country’s oil usage down further. On average, any change in retail gasoline prices of 10% would add or subtract around 40 tb/d to or from total gasoline consumption.
The monthly US oil consumption data for April shows a 1.7% y-o-y contraction. This is the 13th consecutive decline, since the last growth observed for US monthly oil consumption was for March 2011. All main product categories, with the exception of gasoline and propane propylene, fell and the bulk of contractions were seen in residual fuel oil and distillate consumption, as a result of decreasing industrial production and fuel-switching to natural gas. The first six months of 2012 were generally quite disappointing for US consumption, with contractions in all product categories and this was especially strong for residual fuel oil, distillates and gasoline. The main factors influencing US consumption during that period were ongoing economic concern, relatively high fuel prices and fuel-switching. Preliminary weekly data for May and June shows no real improvements to US consumption, decreasing by around 1% each month. For both months, some industrial fuels showed signs of rising consumption.
Nevertheless, the prospects for US consumption for the rest of 2012 remain rather pessimistic, depending upon the development of the economy and the transportation fuel price levels.
Reported data for Mexico in May shows a strong increase in consumption of around 5%, compared with the same month last year. All product categories were positive, except fuel oil, with increases in industrial fuels dominating. As for Canadian oil-usage, the latest available oil demand data indicates a sharp increase of 4.9% y-o-y; oil-usage in transportation and industrial products dominates this increase.
In 2012, North American oil demand is projected to decrease by 0.14 mb/d to stand at 23.4 mb/d.
US auto-sales continued to accelerate sharply in June, despite worries about fuel prices as an indicator of an improving overall economic outlook and marketing incentives. June sales rose by approximately 17% from a year earlier. Furthermore, this higher demand for cars resulted from the replacement of aging vehicles as well. The most recent available data for Canada shows vehicle sales in the country grew by a powerful 18% in May y-o-y. This increase occurred for the eighth consecutive month and resulted from increasing numbers of consumers replacing their vehicles with revamped or fuel-efficient cars and trucks. According to the Mexican Automobile Industry Association, the country’s auto production, sales and exports grew by 2.8%, 17% and 5.7% respectively y-o-y in May.
OECD — Europe
European oil consumption contracted again in May, the ninth month in a row. May’s consumption in Germany, France, Italy and the United Kingdom fell, as a result of decreasing demand for industrial fuels. This was caused by weak industrial activity and shrinking transportation fuels, due in turn to relatively high prices and rigorous taxation. Nevertheless, the short-to-medium-term development of European oil consumption will be determined most of all by the continuing debt problems in several of the continent’s economies. Since regional oil demand has already dipped sharply, the effects of further negative economic setbacks are not likely to be that strong. European ‘Big Four’ oil demand decreased by 0.07 mb/d in May, compared with the same month a year earlier. The Big Four’s consumption of industrial fuels and transportation fuels accounted for the bulk of these decreases.
For 2012, OECD Europe’s oil consumption is expected to shrink by 0.34 mb/d y-o-y, to average 13.9 mb/d.
OECD — Pacific
In Japan, the latest May 2012 monthly data is dominated once more by huge increases in the direct use of crude and residual fuel oil, as a result of nuclear plants being shut down. Due to the shutdown of most of these plants, and in combination with stricter stress tests being one of several conditions for their restarting, direct crude and residual fuel burning for electricity production is expected to increase throughout 2012. Power plants are using crude — and only those crudes with a low sulphur content —, fuel oil and liquefied natural gas (LNG) for electricity power-generation. Moreover, driven by increases in both mileage and the number of vehicles, as a result of government incentives, as well as starting from a very low baseline, transportation fuel consumption has risen, too. In South Korea, April oil product sales climbed strongly, increasing by 5.8% y-o-y; the biggest additions have been observed in gas/diesel oil and gasoline.
OECD Pacific oil consumption is expected to grow by 0.29 mb/d in 2012, while the bulk of the increase will result from direct crude/fuel oil burning for electricity generation and the substitution of nuclear plants.
Driven by government incentives and subsidies, Japanese auto sales continued to rise strongly in June, by a remarkable 43.6%. This trend was seen in the fourth quarter of last year and the first quarter of this year. Japanese auto demand is expected to rise strongly for the rest of the year, partly due to higher sales in tsunami-hit areas, as the government continues its efforts to stimulate demand for special cars, such as hybrids, pure electric cars and other vehicles that employ advanced technology like clean diesel engines. South Korean domestic car sales fell by 3.5% y-o-y in June, while exports grew strongly by 8.9% y-o-y for the same month.
Developing countries
India’s recent floods will affect the country’s fuel consumption for June, not only in agriculture, but in the transport sector as well. Total oil demand is forecast to grow this year by 3.5% y-o-y, despite the big increase in the first quarter. Demand in May was strong, touching on a 5.4% increase y-o-y. The use of liquefied petroleum gas (LPG), diesel and naphtha led to this growth. Diesel-use was up by a massive 9%, adding another 0.12 mb/d to the country’s total oil demand. This excessive diesel demand resulted from a power-shortage in coal-operated power plants, which, in turn, led to the use of diesel in power-generators. Strong demand for diesel is expected to last until the end of the year, as long as the government does not interfere and increase retail prices.
Furthermore, the railways are stepping up their demand for diesel, as summer operations take place. Also, another factor that has boosted the use of diesel is the growth in new trucking registrations countrywide. Gasoline demand plunged by 4%, as a result of the price increases which were introduced by the oil companies in May. For 2012, India’s oil demand is expected to grow by 0.12 mb/d y-o-y.
According to the Society of Indian Automobile Manufacturers, domestic passenger car sales increased by a robust 7.6% during May y-o-y, despite higher fuel prices, increased excise duties on all car models and rises in vehicle prices.
Indonesia is the second-largest oil-consumer in ‘Other Asia’, after India; it will consume 1.4 mb/d by the end of 2012. It is forecast that the country’s oil demand will be 5.4% higher this year than last. This strong demand is related to economic activity which has pushed up the nation’s GDP by 5.8% this year. The country’s second-quarter oil demand is expected to grow by 30 tb/d y-o-y.
Given the healthy economies in most of Other Asia, this region’s oil demand growth is estimated at 0.2 mb/d y-o-y.
The decline in crude-burning reduced Saudi Arabian oil demand by 0.04 tb/d in May y-o-y. However, this is not expected to be repeated in the peak of the summer, where demand for electricity is at its highest. Saudi motorists consumed almost half a million barrels of gasoline daily in May. Transportation fuel is growing at a fast rate, as a result of strong economic activity.
Middle East oil demand is forecast to grow by 2.4%, to average 7.7 mb/d in 2012.
Despite the decline in gasoline-usage, Brazilian oil demand grew by 3.2% in April y-o-y.
Energy-related alcohol demand rose by more than one-third. The country’s average consumption of energy-related alcohol is estimated at 0.16 mb/d in the first quarter of this year. Industrial and transport sectors consumed 30 tb/d more diesel in April, in comparison with the same month a year ago. Latin American oil demand is expected to increase by 0.2 m/d to 6.5 mb/d in 2012.
Source: OPEC