OPEC sees Brazil Olympic boosting global oil demand despite user ban in India
Despite low oil prices and market glut for most of 2015, oil demand in 2016 is anticipated to grow by around 1.3mb/d, says the OPEC Monthly Oil Market Report (MOMR) for February 2016, titled “Review and Outlook of Global Oil Demand.”
In terms of demand from countries that are not members of the Organisation for Economic Co-operation and Development (OECD), middle distillates are projected to grow the most, followed by transportation fuels, mainly during the summer Olympic games in Brazil.
This is not minding the fact that growth in transportation fuels is expected to remain lower than last year (2015), especially in India, where diesel consumption is being impacted negatively by a temporary government ban, limiting the use of diesel vehicles with large engines in big cities.
Worried by the global oil market’s poor performance, resulting in the dollar exchanging for almost N400 in mid February, Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, moved to get major oil producers, such as Saudi Arabia and Russia, to agree to production cuts to shore up oil prices, with Russia and Saudi Arabia allegedly agreeing February 16 not to increase oil output.
However, the OPEC report notes that the impact of subsidy reductions in the Middle East and the economic performance of Latin America will influence oil demand growth in these regions.
This is confirmed by the OPEC Reference Basket (ORB), which declined by around 21 percent to average $26.50/b in January, as the ongoing excess supply, the weakening Chinese economy and lower seasonal heating demand in temperate regions, following mild winters, continued to weigh on the market.
Crude oil futures prices also declined significantly, with ICE Brent down $6.98 to average $31.93/b and Nymex WTI losing $5.67 to average $31.66/b.
The downward trend caused oil consumption to exceed 1.5mb/d in 2015, the second highest level of growth in the past 10 years, with 2010 being the highest.
In contrast to 2014, both OECD and non-OECD contributed to this increment, growing by 0.4mb/d and 1.1mb/d, respectively.
This growth was propelled by lower oil prices encouraging transportation fuel demand in addition to solid gains in the petrochemical sector in China, the United States and Asia-Pacific.
Demand in OECD countries is projected to grow by 0.2mb/d, with the US leading growth, while Asia-Pacific is seen declining and Europe is expected to be broadly flat compared with 2015.
Positive projected growth in the US economy and continued healthy growth in the road transportation sector are seen outweighing downside assumptions for overall US oil demand, mainly linked to fuel substitution and vehicle efficiencies.
In OECD Europe, the strong demand growth seen in 2015 is not expected to be repeated this year.
Significant economic uncertainties, along with ongoing efficiencies and fuel substitution in the road transportation sector, are expected to weigh on oil consumption in the region.
However, this could be offset by expanding demand in major economies, particularly Germany and the UK due to the low oil price environment despite high end-user taxes.
In OECD Asia-Pacific, oil demand assumptions for Japan in 2016 are less promising compared with 2015, mainly due to projected slower economic growth and expectations that a number of nuclear plants will restart operations.
In non-OECD Asia, oil demand growth in 2016 is expected to be around 1.1 mb/d, even with slightly lower growth from China.
The outlook for China, with GDP growth lower than in 2015, is based on the assumption that transportation and industrial fuels will lead the product mix in 2016, despite continued fuel quality programmes targeting lower emissions in the transportation sector.