Overview of Oil Demand & Supply over the World.

Since we are on verge of stepping into year 2024, its highly important to have a look on supply and demand of Oil in recent past and keep track of it which would help us to figure out futures of Oil demand. Though recent developments in terms of alternate energy resources and breakthrough of new variant of COVID and few more Geopolitical issues, there has been significant dent on the supply chain, but all can be analyzed as below:

World Oil Demend:

The forecast for world oil demand growth in 2023 remains unchanged from last month’s assessment at 2.5 mb/d. Oil demand was adjusted lower in 3Q22 and 4Q23 in the OECD Europe and Asia Pacific. This was offset by an upward revision in OECD Americas, due to better-than-expected growth, mainly from Canada. In non-OECD countries, downward revisions to the Middle East and Africa in 3Q23 and 4Q23 were offset by upward revisions in China, Other Asia, and Latin America. Total world oil demand is expected to average 102.1 mb/d in 2023, primarily driven by requirements from non-OECD countries.

In 2024, world oil demand growth is forecast at 2.2 mb/d for an average of 104.4 mb/d, unchanged from the previous assessment. Oil demand is expected to be supported by resilient global GDP growth, amid continued improvements in economic activity in China. The OECD is expected to grow by 0.3 mb/d to reach 46.1 mb/d. Oil demand in the OECD is not expected to surpass 2019 consumption levels. OECD Americas is seen as leading growth, while OECD Europe and Asia Pacific are expected to recover from their 2023 contraction, primarily supported by transportation fuels, particularly gasoline and jet/kerosene. In non-OECD, oil demand is projected to grow by a healthy 1.9 mb/d, at 58.3 mb/d. Continuous improvements in economic activity, steady manufacturing, and transportation activity mostly in China, Other Asia, and the Middle East, as well as in India and Latin America, are expected to account for the bulk of oil consumption.

In terms of oil products, transportation fuels – jet/kerosene, gasoline, and diesel – are expected to drive demand growth. Petrochemical feedstock is also expected to support oil demand in the non-OECD region. However, the forecast is subject to global economic developments, particularly uncertainties about the OECD’s manufacturing and petrochemical sectors.

OECD Americas:

Update on the latest developments Oil demand in OECD Americas increased by 202 tb/d, y-o-y, in September. The increase in demand is almost entirely from Canada, as US oil demand softened marginally by 40 tb/d, y-o-y. Details of the contribution of various products show that the ‘other products’ category led demand growth in the region with 238 tb/d, y-o-y. On the back of healthy air travel demand, jet kerosene increased by 207 tb/d, y-o-y. In terms of petrochemical feedstock requirements, LPG posted 147 tb/d y-o-y growth and naphtha increased 35 tb/d. However, diesel and residual fuels declined by 197 tb/d and 212 tb/d, respectively, in September and gasoline demand remained flat.

Oil demand in the US softened marginally by 40 tb/d, y-o-y, in September. Oil demand was subdued amid large declines in diesel and residual fuels.

Data from the Federal Highway Administration shows that miles travelled on all roads increased by 0.9%, y-o-y in September. However, the seasonally adjusted vehicle miles travelled for September declined by 0.30% (0.8 billion vehicle miles) compared with August 2023.

In terms of air travel, American Airlines’ domestic revenue passenger-kilometres (RPKs) grew by 5.5% y-o-y and by 6.1% over the pre-COVID levels in September 2019 according to a report from the International Air Travel Association (IATA). Regarding airline capacity, available seat kilometres (ASKs) climbed by 9.6% y-o-y, while revenue passenger-kilometres (RPKs) increased by 11.2% y-o-y.

Residual fuels and diesel sustained declines of 244 tb/d and 166 tb/d, y-o-y, respectively, and gasoline softened by 15 tb/d. On the positive side, oil demand growth was led by the ‘other products’ category, growing by 194 tb/d. On the back of healthy air travel activity, jet/kerosene expanded by 159 tb/d, y-o-y, up from 58 tb/d y-o-y growth seen in the previous month. In terms of petrochemical feedstock requirement, naphtha demand increased 23 tb/d, y-o-y, and LPG saw 12 tb/d y-o-y growth.

In 2024, economic activity in the US is expected to remain healthy, supported by private household consumption.

In 1Q24, the US GDP growth is forecast to continue to bolster oil demand. Specifically, further improvements in air travel are expected to support jet/kerosene demand. Heating fuels are also expected to see an uptick due to seasonal winter demand. However, industrial output has been on a prolonged downward trend, and road transportation is expected to soften during the winter season, thus dampening diesel and gasoline demand. Nevertheless, oil demand is projected to increase by about 135 tb/d y-o-y in 1Q24, mostly supported by demand for jet/kerosene and LPG.

Overall, US oil demand in 2024 is expected to expand by 143 tb/d, mostly supported by transportation fuels and light distillates.

OECD Europe:

Update on the latest developments Oil demand in OECD Europe remained under pressure from weak manufacturing and petrochemical activity in the region. Oil demand declined for the third consecutive month by 542 tb/d, y-o-y, in September, albeit an improvement from a 743 tb/d decline seen in August. Manufacturing activity in the big economies of the region remains sluggish.

The German economy has the weakest outlook. The country’s manufacturing PMI has seen fifteen consecutive months of contraction and was at 39.6 points in September. Similarly, France’s PMI has been in contraction for eight months. In September, the country’s PMI fell to 44 points. Other countries in the region, such as Italy, Spain, and the UK, have all experienced similar weaknesses in their manufacturing sectors in recent months.

In addition, persistently high core inflation in the region compounded the problem. Eurozone annual inflation stood at 4.3%, y-o-y, in September, albeit an improvement from 5.2% seen in the previous month. Despite this, inflation remains above the 2% target set by the ECB. The services PMI in the region was also below expansion territory at 48.6 points in September.

Subdued by weak manufacturing activity in the region, diesel demand recorded the largest contraction of 616 tb/d, y-o-y, compared with a 586 tb/d decline in the previous month. Prolonged deceleration in petrochemical activities weighed on LPG, which declined by 44 tb/d, y-o-y. Nevertheless, naphtha has recovered by 19 tb/d, from an annual decline of 150 tb/d in August. Furthermore, demand for the ‘other product’ category and residual fuels softened by 80 tb/d and 61 tb/d, respectively, y-o-y.

On the positive side, healthy transportation activity supported transportation fuels demand to remain steady. Gasoline surged further by 123 tb/d, y-o-y, from 13 tb/d growth in the previous month. Jet/kerosene also expanded by 120 tb/d, y-o-y, up from 106 tb/d recorded in August.

Looking ahead to 2024, the region’s economy is expected to show a gradual recovery. Furthermore, activity in the manufacturing sector is expected to see some improvement. Oil demand is projected to see growth of 57 tb/d, y-o-y, in 1Q24, mainly supported by regional jet/kerosene and gasoline consumption on the back of air and road travel and transportation activity. However, ongoing weak manufacturing and petrochemical activity are anticipated to weigh on industrial fuels and petrochemical feedstock.

For the year, the region is expected to see growth of 55 tb/d, y-o-y, mostly supported by transportation fuels. Moreover, an expected gradual recovery in manufacturing activity is expected to bolster diesel demand in the region.

OECD Asia Pacific:

Update on the latest developments Oil demand in OECD Asia Pacific recovered by 108 tb/d, y-o-y, in September after two successive months of decline. The demand recovery was supported by jet/kerosene which grew by 25%, y-o-y. Similarly, healthy petrochemical feedstock requirements also supported demand.

According to a report by IATA, the international revenue passenger-kilometres (RPKs) in the Asia Pacific region surged 93% y-o-y in September. This brought traffic for the region’s carriers within 20% of their 2019 levels. Jet/kerosene led September oil demand growth by 137 tb/d, y-o-y, up from 98 tb/d observed in the previous month.

The demand for jet/kerosene was healthy across all three major consuming countries in the region. After a long dismal performance, petrochemical feedstock demand in the region has shown signs of recovery, with naphtha growing by 43 tb/d, y-o-y from the decline of 212 tb/d seen in August. Similarly, LPG inched up by 24 tb/d, y-o-y albeit slowing from 77 tb/d growth observed in August. However, gasoline demand in the region softened by 12 tb/d, although South Korea and Japan saw an increase in gasoline demand of 11 tb/d and 13 tb/d, respectively.

Similarly, diesel also saw an annual decline of 26 tb/d, albeit an improvement from the 127 tb/d decline in the previous month. The decline in diesel demand was in Australia and Japan, as South Korea posted 12 tb/d, y-o-y, growth. Finally, residual fuels and the ‘other products’ category saw annual declines of 26 tb/d and 32 tb/d, respectively.

Looking ahead to 2024, the region’s economy is expected to grow modestly, albeit with variations among the region’s countries. The forward-looking indicators – services and manufacturing PMIs – have also been in variance among the major oil-consuming countries of the region. Despite being in the expansionary zone for over a year, Japan’s service PMI slightly retracted to 51.6 points in October, from 53.2 points in September.

The GDP of Japan is also forecast to slightly decelerate. The manufacturing PMI has also been below an expansionary trajectory for a prolonged period. Similarly, services and manufacturing PMIs in Australia were in contraction in both September and October. Nevertheless, the South Korean manufacturing PMI saw an uptick. It rose from 50.5 in October to 51.2 in November.

Steady air traffic recovery amid healthy driving activity and petrochemical industry operations are anticipated to support oil demand to grow by 30 tb/d y-o-y in 1Q24. Moreover, following expected temperature declines during the winter season, extended government energy subsidies in Japan are also expected to support oil demand. Despite the expected slowdown in economic momentum in the region, a healthy air travel dynamic and recovering petrochemical sector requirements are expected to support oil demand growth. As a result, OECD Asia Pacific is expected to grow by 22 tb/d, y-o-y, in 2024.

Non-OECD:

China:

Update on the latest developments Oil demand in China remained firm at about 2.0 mb/d, y-o-y, growth in October. Incremental demand was almost the same as in the previous month. The growth was partly supported by a weak baseline comparison and healthy economic activity amid a steady petrochemical feedstock requirement. The forward-looking indicators show that China’s services PMI was at 50.4 points in October, slightly above the 50.2 points seen in September.

Manufacturing PMI retracted to 49.5 points in October, from 50.6 in September. Transportation activity in China surged during the Golden Week public holiday. According to China’s National Bureau of Statistics, passenger traffic in terms of 100 million person-kilometres recorded 23.5% y-o-y growth in October, up from 20.9% seen in September. Similarly, according to the China Association of Automobile Manufacturers (CAAM), Chinese vehicle sales increased by 13.8%, y-o-y, in October. Furthermore, air travel activity also remained healthy.

According to a report by China’s Civil Aviation Authority, activities on domestic routes jumped 220% y-o-y in October, while international routes recorded a 78% increase. The significant rise in traffic in early October was due to a surge in international travels during the Golden Week public holiday, as passengers travelling out of or into China jumped by 85% compared to the same period in 2019 and almost three times that of a year ago, data from the National Immigration Administration (NIA) showed.

On the back of surging transportation activity amidst a low baseline, gasoline demand increased 618 tb/d, y-o-y, in October, up from growth of 383 tb/d in the previous month. Meanwhile, jet/kerosene saw growth of 392 tb/d, y-o-y, supported by the low baseline, but was below the 520 tb/d recorded in September. Since mid-October, domestic flights have fallen back to 2019 levels after rising by as much as 20% above these during the end-September to early-October holiday week. Residual fuels increased by 370 tb/d, y-o-y. Diesel demand grew by 186 tb/d, y-o-y, below September’s growth of 478 tb/d.

In terms of petrochemical feedstock, LPG posted 183 tb/d y-o-y, growth, down from 310 tb/d in the previous month, and naphtha increased by 88 tb/d, y-o-y, down from 190 tb/d the month before. Finally, the ‘other products’ category increased by 40 tb/d, y-o-y, with growth subdued by a high baseline comparison.

Despite the current healthy economic and services sector activity, recent Chinese economic indicators have highlighted a slowing trend in industrial production. Accordingly, the momentum of oil demand is anticipated to slow from the strong growth experienced in 4Q23. Nevertheless, growing petrochemical capacity in China’s Shandong-based Yulong Petrochemical plant – which should start its 400 tb/d refining complex in 1Q24 – is expected to strengthen petrochemical feedstock demand, boosting demand for naphtha in the near term. Additionally, China's jet fuel demand is expected to increase on the prospect of rising air transportation demand. Forward-looking indicators also point towards a healthy oil demand in the near term, with services PMI inching up from 50.4 points in October to 51.5 points in November. Similarly, manufacturing PMI rose from 49.5 points in October to 50.7 points in November. Accordingly, oil demand in China is anticipated to grow by a healthy 571 tb/d, y-o-y, in 1Q24.

Overall, in 2024, despite an expected easing in the momentum of China’s GDP growth compared to 2023, oil demand is expected to be supported by sustained healthy services sector activity, a recovery in manufacturing activity, and petrochemical sector requirements. Moreover, a further surge in international air travel is expected as China has lifted the ban on overseas group tours. This could encourage more people to travel abroad. Furthermore, demand for light distillates is also expected to continue rising on the back of a sustained expansion of the petrochemical industry. Increased transportation activity is expected to boost demand for gasoline and diesel. For the year, China’s oil demand is anticipated to expand by 580 tb/d, y-o-y.

India:

Update on the latest developments Oil demand in India in October was firm at 218 tb/d, y-o-y, growth, slightly below the 320 tb/d growth recorded in the previous month. Diesel was the main driver of growth in October. A report from the Ministry of Statistics and Program Implementation shows industrial production in India climbed 5.9%, y-o-y, in September 2023. Similarly, India's annual retail inflation eased to a four-month low of 4.9% in October from 5.0% in September. According to the Federation of Automobile Dealers Association, vehicle sales in India also increased by 12% in October, up from 3.5% recorded in September 2023. Indian domestic air traffic stood above pre-pandemic levels for the seventh consecutive month, as revenue passenger-kilometres (RPKs) increased 6.7% in September over 2019 levels. In October, India’s services PMI stood at 58.4 points and manufacturing PMI was at 55.5 points.

In terms of oil products, diesel oil demand grew by 157 tb/d, y-o-y, in October. Diesel consumption increased 14.8%, m-o-m, supported by rising industrial activity and the onset of the festival season amid the sowing of winter crops. Furthermore, trucking activities also increased in October due to the need to transport goods along the supply chain as sellers stocked up to meet the rising demand for goods during the festival season. In terms of petrochemical sector requirements, naphtha saw 45 tb/d, y-o-y, growth from a decline of 32 tb/d in the previous month. LPG increased by 36 tb/d, y-o-y, in October, from 43 tb/d in September. LPG slightly declined by 5% m-o-m after the government raised LPG cylinder prices in October. Higher demand during the Diwali festival season, amid increased economic activity, supported gasoline and jet/kerosene to grow by 39 tb/d, y-o-y, and 19 tb/d, y-o-y. However, the ‘other products’ category and residual fuels declined by 71 tb/d and 8 tb/d, respectively.

In the near term, ongoing strong economic activity combined with robust manufacturing activity, amid the Indian government’s proposed increase in capital spending on construction, are expected to support India’s oil demand in 1Q24. Moreover, the post-monsoon harvesting season and construction activity are also expected to provide additional support to demand growth. Furthermore, forward-looking indicators show healthy manufacturing and services PMIs, suggesting strong prospects for oil demand in the near term. In 1Q24, oil demand is projected to grow by a healthy 227 tb/d, y-o-y.

Distillates are expected to be the driver of oil demand growth, supported by harvesting, construction and manufacturing activities. Additionally, annual traditional festivities and the influx of travellers are expected to support transportation activity and boost gasoline and jet/kerosene demand. Overall, in 2024, India is expected to see a healthy oil demand growth of 220 tb/d, y-o-y.

World Oil Supply:

Non-OPEC liquids production in 2023 is expected to grow by 1.8 mb/d, y-o-y, reaching 67.6 mb/d. Upward revisions to the forecasts for Latin America offset downward revisions to Other Asia, the UK and Other Eurasia.

US crude and condensate production as well as NGL output continue to reach new highs. Total US liquids output reached a record 21.6 mb/d in September due to persistent outperformance of onshore and offshore production. Accordingly, US liquids supply growth for 2023 is forecast at 1.3 mb/d. In addition to the US, the other main growth drivers for 2023 are expected to be Brazil, Kazakhstan, Norway, Guyana, Mexico and China. Nonetheless, there are still uncertainties with regard to weather-related disruptions and unplanned offshore maintenance for the rest of the year.

Non-OPEC liquids production in 2024 is forecast to grow by 1.4 mb/d to average 69.0 mb/d (including 50 tb/d in processing gains). OECD liquids supply is forecast to increase by 0.9 mb/d to average 33.4 mb/d, while non-OECD liquids supply is seen growing by 0.4 mb/d to average at 33.1 mb/d. The main drivers for the expected growth are the US, Canada, Guyana, Brazil, Norway and Kazakhstan. In addition to the US shale basins, accounting for about 48% of expected non-OPEC liquids supply growth, offshore project ramp-ups are expected to substantially support growth next year. At the same time, production is forecast to see the largest declines in Mexico and Malaysia.

OPEC NGLs and non-conventional liquids production in 2023 is forecast to grow by about 50 tb/d to average 5.4 mb/d and to increase by 65 tb/d to average 5.5 mb/d in 2024. OPEC-13 crude oil production in November decreased by 57 tb/d, m-o-m, to average 27.84 mb/d, according to available secondary sources. Non-OPEC liquids production in November, including OPEC NGLs, is estimated to have decreased by 0.4 mb/d, m-o-m, to average 73.9 mb/d. This represents an increase of 0.9 mb/d, y-o-y. As a result, preliminary data indicates that November’s global oil supply was down by 0.43 mb/d, m-o-m, averaging 101.74 mb/d, and decreased by 0.15 mb/d, y-o-y.