Oil demand growth in the US this year is likely to exceed that of China's for the first time since the 1990s, skewing overall global demand in favor of developed markets, investment bank Goldman Sachs said in a new report released Friday.
"In 2013, it was emerging market demand that disappointed while developed market demand not only surprised to the upside ... while European demand actually grew last quarter," according to analysts led by Jeffrey Currie, Goldman's global head of commodities research.
The bank said China's oil demand growth had slowed to just 230,000 b/d year on year from January to October because of its stable GDP growth and moderation of industrial production gains.
Overall oil demand growth in China is expected to average 267,000 b/d this year, down from 417,000 b/d last year.
US oil demand had been in decline since 2011, but recent data suggests oil demand growth stabilizing this year. In September, demand increased by over 1 million b/d year on year, the highest level since January 2001, resulting in US oil demand in Q3 expanding twice as fast as China's, Goldman pointed out.
This was driven by a combination of a pick-up in US economic activity, a limited number of tropical storms, a slowdown in energy efficiency in the transport sector and lower fuel prices, Goldman said.
Oil demand growth in the US this year is expected to reach 343,000/d, compared with a contraction of 407,000 b/d in 2012, according to Goldman's forecast.
This means that China's lack of demand growth has impacted its appetite for oil while the surge in US oil demand has largely been met by absorbing its own domestic shale oil production, resulting in both countries slowing their respective impacts on the global balance, the bank also said.
In Europe, data from the International Energy Agency suggests that oil demand has also stabilized recently from relatively large year-on-year declines in the first half of 2013, again in line with economic recovery, the bank said.
It predicts that this resulting "resource rotation" back towards a market driven by developed economies will continue over the next two years as China embarks on substantial structural reforms and other key emerging countries such as India and Indonesia deal with domestic slowdowns.
EMERGING MARKET GROWTH SLOWING
Similarly, the weakness in India's oil demand growth was acute in Q3, as the depreciation of the rupee resulted in higher domestic fuel prices and weighed heavily on diesel demand growth, Goldman noted.
It estimated that Indian oil demand declined about 100,000 b/d in Q3, the largest quarterly contraction since 2001.
All this resulted in non-OECD oil demand expanding by 220,000 b/d year on year in Q3, only 90,000 b/d more than in OECD countries, Goldman said.
"Not only is US demand growth beginning to lead global oil demand after years of EM [emerging market] demand leadership, but US demand is no longer the margin of adjustment to higher prices as EM currency devaluations make many EM countries extremely exposed to higher oil prices after a decade of the reverse," Goldman said. GLOBAL DEMAND GROWTH HIT BY CURRENCY DEVALUATIONS
The recent stabilization in developed markets' oil demand has, however, not been sufficient to offset oil demand weakness in emerging countries, which will likely continue to suffer from economic slowdowns and broad currency depreciations in 2014, Goldman said.
Along with India, Brazil, Turkey, South Africa and Indonesia -- which collectively accounted for 9.5 million b/d of oil demand this year -- have also devalued their currencies by double-digits since the start of the year and further depreciations of between 10%-30% are likely to come.
The currency woes, along with restrained domestic demand in emerging economies, means global oil demand growth will likely reach 1.35 million b/d next year. While this is up from the 2013 global growth estimate of 840,000 b/d, it is 125,000 b/d less than what would be implied based on the bank's global GDP growth forecast of 3.6% for next year.
Goldman is forecasting 1.21 million b/d of oil demand growth in non-OECD countries next year, while OECD economies will only see demand expand by 142,000 b/d, largely because of an expected 207,000 b/d decline in Japanese oil demand as its nuclear power plants start coming back online next year.
Broken down regionally, Goldman expects US oil demand to grow by 210,000 b/d in 2014, while European oil demand will expand by 43,000 b/d, compared with a 155,000 b/d contraction this year.
Latin American oil demand growth will remain stable at 158,000 b/d next year while total Asia-Pacific growth will rise to 445,000 b/d in 2014, from 246,000 b/d this year.
China's overall oil demand will grow by 300,000 b/d in 2014, limited by stagnant gasoil demand growth as industrial production gains are likely to remain at 2013 levels, Goldman said.
While real GDP will likely continue growing in India, oil demand will be capped by further anticipated depreciation of the rupee and gradual removal of diesel price subsidies. Goldman expects overall oil demand in India to rise 44,000 b/d next year, from 11,000 b/d in 2013 but starkly lower than the 151,000 b/d increase in 2012.
