Market Overview

Despite Increasing Focus on Electric Vehicles, Global Oil Demand Still Growing in the Short Term, Supporting Refining Margins, IHS Markit Says

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Strong demand growth for oil expected through 2020, as refiners enjoy
extended "mini"-golden age

Short-term oil demand is still growing strong and will continue to do so
through the end of 2020; a trend taking place despite the market's
increasing focus on electric vehicles and the forecasted future plateau
in oil demand, according to new analysis from IHS Markit (NASDAQ:INFO),
a global business information provider.

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Five-year Rolling Aggregate Global Liquids Demand Growth Source: IHS Markit 2018

Five-year Rolling Aggregate Global Liquids Demand Growth Source: IHS Markit 2018

Refined product demand growth has averaged 1.2 million barrels per day
over the last five years1, IHS Markit says in the new report
from its oil markets and research team. Current global total liquids oil
demand growth is at similar levels to what was recorded during the 2003
to 2007 commodity super-cycle, referred to as the ‘golden age' of
refining. At present, current global total liquids oil demand is
approximately 100 million barrels per day, the report says.

With economic growth robust and prices still under pressure, indications
are that the current strong global refined product demand growth will
continue through to end-2020, averaging 1.1 million barrels per day, per
year, during the period. IHS Markit expects global GDP to grow by 3.4
percent in both 2018 and 2019, respectively, due to convergence of
robust economic activity in many markets around the world.

"Although electric vehicles (EVs) are making headlines, they are not yet
a market force to replace the internal combustion engines that power
today's automotive fleets, so oil demand is currently growing strong,"
said Spencer
Welch
, director, head of global short-term refining research at IHS
Markit, and the report's co-author. "Although EVs undoubtedly have the
potential to disrupt the energy and automotive sectors in the longer
term, they currently make up around 1.5 percent to 2 percent of total
global vehicle sales, and account for less than 0.5 percent of the
global vehicle fleet; so their influence on the oil market, in the short
term, is limited."

The IHS Markit report compared the current oil demand growth surge to
demand levels during 2003 to 2007, and identified underlying significant
differences between the two cycles.

"There are key differences between the oil market today and the oil
market in 2003 to 2007, which is important when we seek to assess how
sustainable this demand growth cycle is as compared to the past," Welch
said. "Demand growth now is currently more widely distributed, with the
OECD (Organization for Economic Cooperation and Development, which
includes 35 countries) region and NGLs (natural gas liquids)
contributing much more to global oil demand than during 2003 to 2007. In
addition, the global oil demand growth is supported by most refined
products rather than being concentrated on diesel as it was in the
previous period, which is putting less strain on refiners."

"Refiners are also better prepared to meet current global demand growth
than they were in the previous commodity super-cycle, and as a result,
have been enjoying a ‘mini-golden age,' which we expect to continue a
while longer," Welch said.

This diversity of demand, both geographically and in terms of product
mix, is an important factor, IHS Markit said, in determining the
sustainability of the current cycle, which is key to keeping the oil
market in balance, and supporting prices.

According to Welch, the questions that the IHS Markit researchers seek
to answer next are: how long will oil demand growth last, and will
ongoing economic growth and moderately low, stable oil prices continue
to support demand and refining margins into the medium term. "There is a
possibility that the OECD-demand growth effects could be short-lived as
oil prices gradually start returning to higher levels, fuel economy
improves and EV penetration grows," Welch said.

Another key consideration for total liquids demand, Welch said, will be
to determine how long NGLs will provide unusually firm support to oil
demand growth. "Increasing upstream activity in North America will
support continued growth of NGLs as a pillar of demand," according to
the IHS Markit report.

"Looking forward, we expect a continued reduction in energy intensity to
gradually offset the factors currently supporting demand growth," said
Eleanor Budds, principal analyst, oil markets and downstream, at IHS
Markit, and a co-author of the IHS Markit report. "Several growth
drivers, notably in EVs and fossil fuel regulation, have developed
rapidly during the past year and will continue to do so during 2018 and
2019."

"We expect oil demand growth to remain strong for the next couple of
years but looking further ahead, we expect refined product demand growth
to start easing back toward 1 million barrels per day per year,
principally because of continually improving vehicle efficiency,
progressively supported by increasing EV and hybrid vehicle sales,"
Budds said. "Vehicle efficiency improvements will be more influential on
oil demand than fuel substitution during the next 10 years."

The period of strong oil demand growth from the commodity super-cycle of
2003 to 2007 was ended by the 2008 global recession, the worst global
recession since the Great Depression of the 1930s, but Welch is not
envisioning a similar end to this particular cycle for oil demand. "The
current strong cycle of oil demand growth is more likely to gradually
ease than to crash, providing ongoing short-term support for global
refining margins."

For more information on the IHS Markit oil and refined markets research,
please see the IHS
Markit blog on this topic
.

To speak with Spencer Welch or Eleanor Budds, please contact Melissa
Manning at melissa.manning@ihsmarkit.com.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world's leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.

__________________________

1 Total liquids oil demand growth, which includes natural gas
liquids from crude and natural gas production, was 2.0 million barrels
per day in 2017 and averaged 1.6 million barrels per day over the past
five years.

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