Industry Trend Analysis - CEE Hot Spot For European Fuels Demand - MAY 2017

BMI View: Strong trade growth, a solid consumer outlook and comparatively low prices will support CEE fuels gro wth over the coming three years, marginally counterbalancing our more bearish outlook for Western Europe.

The Central and Eastern European (CEE) economies of Czech Republic, Hungary, Poland and Romania have had relative economic success over the last two years. Real GDP in each country grew at between two and five percent in 2015 and 2016, outperforming most more mature western European markets. Lower energy prices have offered marginal support to growth and this is reflected in fuels consumption, which has returned to sustained increases since weakening from 2010.

CEE Fuels Demand Strengthening
CEE Refined Fuels Consumption (000b/d)
f = BMi forecast. Source: BMI, EIA, JODI

A similar trend is apparent in the five largest European fuels markets of Germany, France, the UK, Spain and Italy ( see 'Fuels Demand To Moderate ' , January 18). However, unlike Western Europe, where we expect to see fuels demand return to its downtrend in 2017, the four major CEE economies are forecast to continue growing. That said, the combined fuels consumption of the four identified CEE markets was roughly equivalent to total diesel consumption in Germany over 2016. Despite this, it marks an important area of fuels growth in a soft European market.

Trade And Consumers Supporting Fuels Growth

Despite a contraction in construction over 2016, diesel demand has been robust due to strong regional trade. We expect high levels of demand from the freight and transport sector to continue into 2017, supporting our forecast for growth. In addition, rebounding fixed investment growth in the region, through both EU and corporate funding, will help accelerate activity in the construction sector, and further improve demand for diesel fuel ( see ' Fixed Investment Rebound To Boost Growth ' , January 12).

Strong Trade Helps Diesel
CEE Diesel Consumption (000b/d)
Source: JODI, BMI

We expect new investment in the region to be supportive for the consumer outlook, which will help sustain consumption growth for gasoline and jet fuel. Gasoline demand continues on a steady uptrend, and will likely be supported by strong car sales throughout the major CEE markets ( see ' Western Europe To Drag On Regional Vehicle Sales ' , December 22 2016). Cheaper fuel prices compared to the 2010-2014 period will also enable more discretionary spending on travel and fuel.

Consumer Spending Supporting Gasoline
CEE Gasoline Consumption (000b/d)
Source: JODI, BMI

Similarly the jet fuel story and outlook is positive. On the back of tight labour markets as CEE economies are nearing full employment, wages will continue growing at a healthy rate in 2017. This will support air passenger numbers as travel for both business and tourism increases.

Flying High
CEE Jet/Kero Consumption (000b/d)
Source: JODI, BMI