LONDON (Reuters) - Global oil consumption is growing much faster than most analysts expected at the start of the year but increases in demand remain very uneven geographically and by fuel.
World oil demand increased by 1.4 million barrels per day (bpd) in the first three months of 2016 compared with the same period in 2015, the International Energy Agency said on Thursday (“Oil Market Report”, IEA, May 2016).
First-quarter consumption grew faster than the agency predicted at the end of last year, when it forecast growth of 1.2 million bpd between January and March (“Oil Market Report”, IEA, December 2015).
For the time being, the IEA has left its forecast for average consumption growth this year at 1.2 million bpd, noting “headwinds” as a result of sluggish global growth, which implies a slowdown later in 2016.
But coupled with large crude supply interruptions from Canada, Nigeria, Libya, Iraq and Venezuela, and a slowdown in U.S. shale, the agency predicts the “the direction of travel of the oil market (is) toward balance”.
The agency expects the global supply-demand surplus to narrow sharply from 1.3 million bpd in the first six months to just 200,000 bpd in the second half of 2016.
The strongest demand growth is coming from India and the United States, where cheaper prices are encouraging motorists to consume record quantities of gasoline.
India’s consumption of petroleum products topped 4 million bpd for the first time in the 12 months ending in April, according to data from the Ministry of Petroleum and Natural Gas.
Consumption of petroleum products was around 400,000 bpd higher during the first four months of 2016 compared with 2015, an increase of 10 percent (tmsnrt.rs/1YnySYn).
As a result of the phenomenal increase in oil demand from its growing middle class, India is now the fourth-biggest oil consumer in the world and set topple Japan from third-place in the next year (tmsnrt.rs/1YnyXLL).
U.S. ON THE ROAD
In the United States, consumption of petroleum products is estimated by the Energy Information Administration to have increased by 240,000 bpd in the first four months (“Short-Term Energy Outlook”, EIA, May 2016).
Petroleum consumption is being driven by prodigious use of gasoline as the volume of traffic on U.S. roads grows strongly and motorists opt for larger crossover-utility vehicles rather than smaller cars.
The EIA estimates drivers used 9.46 million barrels of gasoline per day in April, an increase of 320,000 bpd compared with the same month in 2015.
The United States is on track to consume a record amount of gasoline this year, passing the previous peak set in 2007.
The extraordinary strength of demand from motorists has caused the EIA to revise its forecast for gasoline consumption sharply higher over the course of the last six months.
The agency’s gasoline consumption growth forecast has been raised from just 10,000 bpd in December to 70,000 bpd in January, 90,000 bpd in March, 130,000 bpd in April and now 160,000 bpd in May.
These pockets of exceptionally strong oil demand have helped offset a much weaker picture in other regions and for other fuels such as diesel.
Latin America and the Middle East, among the biggest drivers of oil consumption until 2014, report much slower growth or even falling consumption as their economies fall prey to the commodities slump (“Brazil’s fuel consumption falls as economy shrinks”, Reuters, May 6).
Consumption of diesel and other mid-distillates has been hit by a warm winter across the northern hemisphere as well as stagnant or falling freight demand in the United States and around much of the globe.
Freight demand shows no sign of picking up in either the United States or the rest of the world (tmsnrt.rs/1YnyVU2).
Slumping oil, gas, mining and manufacturing activity continues to weigh on shipments of raw materials and capital goods while distributors and retailers struggle with elevated inventories (tmsnrt.rs/1YnyVUb).
Fears at the start of the year about a sudden plunge into a global recession have proved unfounded but the global economy is struggling to gain much traction and freight demand is growing very slowly if at all.
Reflecting the weak freight outlook, the EIA forecasts U.S. consumption of fuels other than gasoline will decline by 20,000 bpd in 2016 before returning to growth of 120,000 bpd in 2017.
Global oil demand looks set to surprise on the upside again in 2016 as it did in 2015, entirely on the back of drivers in a handful of economies, provided global economic conditions do not deteriorate further.
A sustained increase in oil demand requires a broadening of the demand away from gasoline and the United States and India to include diesel and other emerging economies.
The northern hemisphere winter in 2016/17 should be colder than the abnormally warm one in 2015/16, which will increase heating oil consumption (“Colder winter could save distillate market”, Reuters, May 4).
But a more balanced fuel market will have to wait for an increase in global trade volumes and a resumption of growth in Latin America, the Middle East and Asia.
(John Kemp is a Reuters market analyst. The views expressed are his own)
Editing by David Evans
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