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Global oil demand to rise on non-OECD growth

The IEA says demand growth will rise by 1.4 million barrels per day

Global oil demand will rise by 1.5% next year, driven by economic growth in non-OECD countries, the International Energy Agency (IEA) said. In its July oil-market report the IEA said global oil demand growth will accelerate in 2015, rising by 1.4 million barrels per day (b/d) to average 94.1m b/d. 
Total global oil demand will average 92.9m b/d in the first quarter of 2015, before rising to a peak of around 95.3m b/d in the fourth quarter, the IEA said. This is up from an expected oil-demand growth rate of 1.2m b/d (1.3%) this year. 

The increase will be driven by growing demand from non-OECD countries, which will consume an extra 1.5m b/d in 2015, causing the total to rise to 48.2m b/d. The IEA said this will offset a 100,000 b/d fall in OECD demand because of efficiency gains and only modest economic growth. OECD demand is expected to be around 45.9m b/d next year.

Demand for gasoil and diesel will drive this growth followed by liquefied petroleum gas (LPG) and gasoline. Industrial demand will support demand for gasoil/diesel and LPG, while gasoline demand growth is expected to be particularly steep east of the Suez. 

The IEA said expectations of stronger economic growth for non-OECD economies than for OECD ones were responsible for the divergence in demand growth expectations. Non- OECD economies should expand by an average of 5.3% next year, compared with around 2.3% for OECD countries. That oil demand per capita is considerably lower in non-OECD countries, compared to OECD ones, is another key factor in the divergence.

Non-OECD demand also follows different seasonal patterns from those in the rich world. The IEA expects OECD demand to contract by 600,000 b/d between the first and second quarter of 2015, causing global demand growth to slow to a quarter-on-quarter low of 300,000 b/d. 

In the third quarter of 2015 OECD demand is expected to rebound by around 900,000 b/d, lifting global quarter-on-quarter growth to 1.5m b/d, the IEA said. For the second half of 2014 the IEA has cut its forecast for global oil demand by 135,000 b/d, to 91.9m b/d. This is because of weaker-than-expected demand in China, Germany, Italy and Iraq. European oil demand has also been cut because of the region's disappointing economic performance, the IEA said. 

The IEA said it was responding to comments from Christine Lagarde, director of the IMF, that the global economic recovery was "modest, laborious (and) fragile". The IMF has suggested that a previous 2014 forecast for global GDP growth, of 3.6% then rising to 3.9% in 2015, may have to be cut. 

The IEA has marginally reduced its forecast for Chinese oil demand in 2014, to 10.4 million b/d, driven by expectations of slightly less industrial fuels use. The IEA now expects Chinese oil-demand growth of around 3.3% in 2014, 0.2% below the previous estimate. 

Expectations of Iraqi demand have been lowered because of the Islamist military offensive in northern and central Iraq. Supply risks, especially to Opec producers, will be heightened next year because of geopolitical uncertainty across Iraq, Ukraine, Libya, Nigeria and Venezuela, the IEA said.

Non-Opec production growth is expected to remain at 1.2m b/d, driven by increases in US output while demand for Opec crude will fall by 100,000 b/d, to 29.8m. The IEA said that although the US and Canada are likely to remain mainstays of non-Opec growth, 2015 is expected to have more diverse sources of supply increases compared to 2014. For 2015, production from the Eagle Ford shale play is expected to exceed 1.6m b/d, up from 1.4m b/d this year. 

US light tight oil, mostly from North Dakota and Texas, as well as Canadian bitumen will represent over half of the total non-Opec supply growth in 2014. For 2015 North America is expected to provide two-thirds of the net non-Opec supply growth.

However some oil-producing countries which are expected to experience declines in 2014 will contribute to growth in 2015, the IEA said. These include the UK (+50,000 b/d), Vietnam (+20,000 b/d), Malaysia (+10,000 b/d) and Norway (+10,000 b/d). 

Brazil will contribute the largest source of production growth in 2015, following the US and Canada, as projects, such as the Cidade de Ilhabela and Cidade de Mangaratiba floating production storage and offloading units, start to ramp up.

Among declining countries for 2015, Mexico is expected to suffer the largest production drop, as large mature fields, such as Cantarell and the KMZ complex, are expected to continue their decline.

Oil product markets may also experience "occasional turbulence" as the global refining industry continues to restructure and capacity growth in Russia and East of Suez forces further closures in Europe and Japan.

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