The International Energy Agency (IEA) found in its latest monthly “Oil Market Report” that global oil demand for 2015 is now seen rising by 1.1 million barrels per day (MMbbl/d), to a total of 93.6 MMbbl/d, thanks to a “steadily improving global economic backdrop.”

Meanwhile, global refinery crude runs are expected to fall seasonally to 77.3 MMbbl/d in second-quarter 2015, from 78 MMbbl/d in first-quarter 2015, according to the agency.

“While Atlantic Basin refiners mostly completed turnarounds in 1Q 2015, Asian refinery maintenance is set to ramp up sharply in 2Q 2015, with up to 2.5 MMbbl/d of distillation capacity offline at its peak in May,” according to the IEA.

“Weaker than expected throughputs for a number of non-OECD countries and unexpectedly strong product demand supported margins, providing OECD refiners with an incentive to use surplus capacity.

“Current estimates peg 1Q-2015 OECD [refinery crude] runs up 900,000 barrels per day (bbl/d) from a year earlier, while estimated non-OECD growth has been cut to less than 300,000 bbl/d,” according to the agency.

“Unexpected demand strength in crude and product markets has boosted refining margins in some of the very markets where demand had seemed to be the weakest. European product demand, long in secular decline, swung back to growth in some markets in early 2015, and the region’s refining sector has found renewed vigor amid weaker-than-expected runs elsewhere,” according to the IEA.

Meanwhile, “non-OECD refinery runs look on track to post year-on-year [yoy] growth of just 250,000 bbl/d for 1Q 2015, their weakest annual increase since 2009.

“Strong gains in China and parts of the Middle East were more than offset by outages in Latin America and Iraq, the impact of a revised tax scheme in Russia and surprisingly modest growth in the rest of non-OECD Asia in early 2015. Growth is expected to accelerate later in 2015, once new capacity ramps up,” according to the IEA.

In Latin America, “planned and unplanned shutdowns in Colombia, Brazil and Venezuela have dragged regional runs sharply lower,” whereas in the Middle East, “the pace of the ramp-up of new refineries is somewhat uncertain” as “available data show that these new plants have so far failed to offset outages in Iraq, plagued by the ISIL campaign since last summer,” according to the IEA.

As for Russia, data indicate that “recent tax changes could prompt some refiners to curb output.”

OECD Demand

In OECD member nations, oil demand grew yoy in February for the third consecutive month. “This is the first three-month period of consistent OECD oil demand growth in four years,” according to the IEA.

“Gasoil/diesel demand led the gains, largely a consequence of colder-than-year-earlier weather conditions in most large OECD consumers except Japan and Scandinavia, but also gaining traction on tentatively building macroeconomic momentum.

“The forecast for 2015 as a whole is for essentially flat OECD demand, at approximately 45.7 MMbbl/d, as improvements in the economy and colder 1Q-2015 weather roughly balance the downside effects of efficiency gains and product switching.”

In OECD Americas region, “more supportive macroeconomic conditions and lower U.S. retail product prices continue to stimulate absolute yoy demand growth across the OECD Americas, but momentum may be slowing,” according to the IEA.

“U.S. gasoline demand continued to grow in February and March, according to weekly statistics from the U.S. Energy Information Administration [EIA], although momentum eased to a four-month low by March, as depicted in the less buoyant consumer and business confidence measures.

“Overall in 2015, the U.S. demand trend is likely to be one of modest 1.1% growth, taking average deliveries up to around 19.2 MMbbl/d for the year as a whole, a seven-year high,” according to the IEA.

As for Europe, latest data show oil demand rising 2.6% yoy in 1Q 2015. “Notably stronger gasoil/diesel and LPG demand led” the demand surge, as “improving macroeconomic conditions supported both products, while colder-than-year-earlier weather conditions [with the exception of Scandinavia] also stimulated additional European gasoil demand,” according to the IEA.

As for the OECD Asia Oceania region, latest data show a “mixed bag, with strong gains in Korea and New Zealand offsetting absolute declines in Japan. Even in Japan, however, the latest demand data shows a relative easing in the pace of yoy demand declines, with oil product demand falling by a relatively shallower 5.4% yoy in February, compared to previous six-month trend of -7.3% yoy,” according to the IEA.

Non-OECD Demand

Meanwhile, oil demand in the non-OECD countries “remains on a near +2% yoy growth trajectory,” according to the IEA.

“Sharp divergences exist across non-OECD nations, however, with strong gains in the likes of India and Saudi Arabia, while weak and/or falling demand growth exist in many other countries, such as Iraq, Argentina, Russia, Nigeria and Brazil.”

In China, estimates of oil product demand for February “have been curtailed on reports of heightened product stock-builds, which equate to a negative influence on IEA apparent demand calculations,” according to the agency.

“China oil, gas and petrochemicals estimate a hefty product stock-build of roughly 470,000 bbl/d, February over January, with particularly sharp gains in gasoil/diesel stocks, hence contributing heavily towards February’s forecast decline of over 4% yoy in Chinese gasoil/diesel demand, to 2.9 MMbbl/d,” according to the IEA.

“Looking at overall Chinese oil demand it is difficult to see a substantial uptick until the currently ailing industrial backdrop clears. Regarding gasoil/diesel, only a modest uptick in demand is foreseen for the year as a whole, +0.6% to 3.4 MMbbl/d, as the anemic underlying industrial data remain a constraint.

“Such weak gasoil demand is forecast to curb overall Chinese demand growth to around 280,000 bbl/d (or 2.7%) in 2015, to 10.7 MMbbl/d, offsetting relatively strong gains in gasoline, LPG and jet/kerosene.

As for India, “heightened road transport fuel demand took total Indian oil product deliveries up to an all-time high of 4.3 MMbbl/d in February, with particularly strong gains seen in gasoline and diesel demand, respectively higher by 18.2% and 7.4% yoy.”

“Such robust gains took the overall Indian growth rate up to its highest level since mid-2012. Overall in 2015, an average gain of around 5% is forecast supported by near 7% GDP growth projections and the likelihood of only very modest further cuts in energy price subsidies, thus easing one of the key issues that dampened 2014 demand growth: lower subsidies.

“The latest economic data, from the Ministry of Statistics and Program Implementation, generally support the strengthening backdrop to Indian oil demand, with GDP up 7.5% yoy in 4Q 2014 and industrial output 2.6% yoy higher in January,” according to the IEA.

As for Russia, latest data indicate “stronger-than-anticipated 1Q-2015 deliveries of 3.5 MMbbl/d, up by 20,000 bbl/d on the year and 135,000 bbl/d above our prior forecast.”

“Absolute gains in residual fuel oil and ‘other product’ demand led the upside, alongside tentative gain in the transport sector. Business confidence indicators for February showed a surprise bounce, potentially contributing towards February’s 40,000 bbl/d yoy gain.

“Despite such 1Q-2015 resilience, however, the falling Russian oil demand forecast for 2015 as a whole very much remains in place, -4.3% to 3.5 MMbbl/d. Not only does the overall macroeconomic backdrop remain a contracting one but also forward-looking industrial sentiment indicators, such as HSBC/Markit’s Manufacturing PMI, remain ‘pessimistic,’” according to the IEA

As for Brazil, “a general deterioration in the Brazilian domestic economy recently has curbed the previously strongly growing oil demand trend.”

“Exceptionally weak gasoline demand led February’s climb-down, as having posted yoy growth in the previous 42 months, February saw an absolute yoy decline.

“Gasoil/diesel demand also creaked, although absolute yoy declines in Brazilian gasoil demand are a less unusual occurrence, with declines previously seen in four of the ten months prior to February’s reduction.

“Having previously bucked the otherwise declining Brazilian economic data flow, the Confederacao Nacional da Industria’s consumer confidence index flattened in February, to an exactly neutral 100 and well down on recent levels of ‘optimism’ such as January’s 104.2 reading or October 2014’s recent high of 112.

“Having risen by approximately 3.9% in 2014, a more subdued +2.0% demand trend [for Brazil] is foreseen for 2015, taking average deliveries up to around 3.2 MMbbl/d for the year as a whole,” the IEA concluded.

Contact the author, Jack Peckham, at jpeckham@hartenergy.com.