Over The Barrel - Focus: Global Oil Demand
Although changes to the global demand situation in response to higher prices have begun to develop, they do not appear to be happening quickly enough. Nevertheless, the risk that demand might be overstated seems higher now than a month ago given the credit crisis' impact on housing activity in the U.S., higher prices, and attempts by some countries, including China, to pass higher prices on to consumers.
Global Oil Demand | ||||||
Million Barrels per Day | ||||||
| 2003 | 2004 | 2005 | 2006 | 2007* | 2008* |
OECD DEMAND |
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North America | 24.5 | 25.4 | 25.5 | 25.3 | 25.6 | 25.9 |
Europe | 15.4 | 15.5 | 15.5 | 15.6 | 15.4 | 15.6 |
Pacific | 8.6 | 8.5 | 8.6 | 8.4 | 8.4 | 8.5 |
Total OECD | 48.6 | 49.3 | 49.6 | 49.3 | 49.5 | 50.1 |
Non OECD DEMAND FSU | 3.6 | 3.8 | 3.8 | 4.1 | 4.0 | 4.1 |
Europe | 0.7 | 0.7 | 0.7 | 0.7 | 0.8 | 0.8 |
China | 5.5 | 6.4 | 6.7 | 7.2 | 7.6 | 8.0 |
Other Asia | 8.1 | 8.6 | 8.7 | 8.9 | 9.1 | 9.3 |
Latin America | 4.7 | 5.0 | 5.1 | 5.3 | 5.5 | 5.6 |
Middle East | 5.4 | 5.7 | 6.1 | 6.3 | 6.5 | 6.9 |
Africa | 2.7 | 2.8 | 2.9 | 2.9 | 3.1 | 3.2 |
Total Non-OECD | 30.6 | 32.9 | 33.9 | 35.4 | 36.6 | 37.9 |
Total Demand1 | 79.2 | 82.3 | 83.5 | 84.7 | 85.9 | 88.0 |
* Forecast |
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Source IEA and AFS. Totals may not add due to rounding. |
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On a world basis demand for 2007 is expected to total 85.9 mb/d compared to 84.7 mb/d in 2006. For 2008, demand is currently forecast by the IEA to total 88.0 mb/d. We suspect that in their forthcoming publication to be released on November 13th, some modest revisions to the downside might take place for 2008 to 87.9 mb/d.
Downward revisions will likely be concentrated in OECD countries, particularly North America. Prospects that higher prices and a weakening in the economy will dampen demand in the U.S. have already become apparent. U.S. demand reportedly showed little growth during the third quarter, as high gasoline and low natural gas prices appear to have cut into demand for petroleum products. Outside the U.S., demand looks to be on target given current economic prospects and the cushion to oil prices provided by a weaker dollar.
Non-OECD countries are expected to show the most pronounced growth in demand. Current forecasts indicate that demand in 2007 will total 36.6 mb/d, an increase of 3.4% over the 35.4 mb/d reached in 2006.
It is anticipated that China will show an increase in demand for 2007 of 5.6%. In 2008, a further 5% increase is in prospect. With China beginning to raise retail prices for gasoline, it may become more difficult to achieve the forecasted increases, particularly if the U.S. economy begins to show a retrenchment in growth. Although many countries attempt to limit price increases in petroleum products, current prices are beginning to pose strains on state budgets. Subsequently, attempts to pass on the higher prices could be a drag on growth in these areas. However, we suspect that given the rising incomes and potential for further dollar weakness, the impact on petroleum demand might be marginal. For 2008, growth in non-OECD demand should reach 3.5 percent to 37.9 mb.
In conclusion, we have begun to see signs of retrenchment in demand growth concurrent with the higher prices. However, there is little to suggest it will be enough to avoid a steady draw in inventory levels as we move through 2008, even when assuming a normal winter.
If you have questions regarding Over The Barrel, please contact Steve Platt at stephen.platt@archerfinancials.com.
The information and comments contained herein are provided as general commentary of market conditions and are not and should not be interpreted as trading advice or recommendation. The information and comments contained herein are not and should not be interpreted to be predictive of any future market event or condition. The information and comments contained herein is provided by ADM Investor Services, Inc. and not Archer Daniels Midland Company. Copyright © ADM Investor Services, Inc.
