Emerging economies are leading the world’s oil demand, but over production and surpluses threaten fuel prices.
According to a US report, Chinese and Brazilian oil demand rocketed in April, pushing fuel use by emerging economies above that of developed countries. Countries not within the Organisation for Economic Cooperation and Development (OECD) consumed 44.5m barrels-per-day (bpd) in April, well above the 44.3m bpd needed by most industrialised nations.
The Paris-based International Energy Agency (IEA) predicted oil demand from non-OECD countries would surpass that from developed economies this quarter. Consumption in emerging economies remained on average 180,000 bpd higher than OECD nations throughout May.
While demand remains buoyant, poor manufacturing data from China, which saw fuel use rise by 0.7% last quarter, could signal weaker consumption in the coming months. Brent crude has already fallen below $100 a barrel as analysts speculate production will outstrip demand.
The Organisation of Petroleum Exporting Countries (OPEC) is currently producing around 1m bpd more than their agreed daily output of 30m bpd. At a recent OPEC conference in Vienna, Venezuela expressed concern that oversupply may drive prices below $100 a barrel.
China currently has a base oil production capacity of 6.8m tons, with base oil demand at around 6.5m tons, meaning current supply is enough to support its domestic lubes market. However, lubricants companies imported just 1.3m tons in 2012, suggesting an oversupply of 5.2m tons.
An analysis from energy agency, Platts, has calculated the crude stockbuild at an average of 592,000 bpd in May, the highest since the 1m bpd level some 12 months ago. They claim the stockbuild may be higher due to lower refinery operating rates and a slight gain in net imports.
Furthermore, as the price of oil fell last year China took advantage by filling its reserves, which artificially boosted demand figures. While stockpiles have fallen since then, it is unlikely that even summer demand will push actual consumption up. China only has so much space in its strategic reserves to prop up global demand.