Industry Trend Analysis - European Fuels Demand Outlook Upgraded - OCT 2017

BMI View: We have revised up our fuels consumption outlook for four of the top five European demand markets due to stronger economic performances in key regions and subdued global crude prices. These two factors have been instrumental in reversing the rapid erosion of fuels demand since 2015 and we expect them to remain in place over the coming years.

European fuels demand has been an area that has beaten our expectations over recent years. After a multi-year period of declines (2005-2014), the erosion of consumption reversed in 2015. This was a result of two factors. Firstly, a demand response to lower fuels prices as crude prices tumbled in the back half of 2014. Secondly, an economic revival across the region boosted consumer and industrial demand as economic activity increased. We anticipate these two factors to remain in play over the coming years and as a consequence we have revised up our consumption forecast in Italy, Spain, Germany and France, which are four of the five top European demand markets. We now expect total consumption growth to continue in 2017 with our forecast upgraded from 8.348mn barrels per day (b/d) to 8.430mn b/d. We have also improved the outlook for 2018 and 2019 with consumption peaking in 2019 at 8.504mn b/d. The exception to our upgrades is the UK, as foreign exchange effects, poor consumer confidence and tepid economic growth lead us to keep the UK's fuels consumption in a moderate decline.

While we forecast crude prices to rise over the coming years, these price increases will be incremental and will not hit the USD100/bbl+ range that was discouraging the use of hydrocarbons ( see ' Brent: Firming Fundamentals To Lead H217 Price Growth ' , August 3). While higher prices in 2017 are translating into lower consumption growth, there has still been growth in Italy, Spain, France and Germany as opposed to the declines we were originally forecasting. We forecast subdued crude prices over the coming years with our crude forecast showing a 2018 average of USD55/bbl and USD61/bbl in 2019 which will encourage moderate demand growth although we note that this growth will be slowing.

Lower Prices Boost Fuels Consumption
Average Brent Price & Fuels Demand Growth In Top Five Markets
Source:JODI, BMI

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