All a bit confusing

Cautious optimism in Europe is on the rise, with a temporary reprieve for Greece, stock indexes hitting record highs and economic data mostly coming out better than forecast so far this year. But extrapolating fuel demand forecasts for the region is fraught with complications.

As the IEA said in December: “In oil-importing countries, price effects are asymmetrical: Demand lost to substitution or efficiency gains during prolonged periods of high prices will not come back in a selloff… The dollar’s strength and oil sale taxes in some countries will also limit the feed-through from crude oil to retail product prices. In the OECD, a tepid economic recovery, weak wage growth and — last but not least — worrying deflationary pressures will further blunt the stimulus of lower prices.”

Looking at Europe as a whole, the secular decline in energy intensity has the OECD watchdog forecasting demand of 14mn b/d this year, down from 14.3mn b/d in 2013 and 14.1mn b/d last year. At the national level within Europe, the continuing fall in energy intensity interacts not only with GDP performance but with unseasonable seasons, canny consumer behaviour, and a host of other variables such as the French government’s new demonisation of diesel and conversion to the cause of gasoline.

In Germany, where products data for 2014 as a whole have just been released, the Dax index of stocks has been trading around record highs since data were released showing 0.7pc quarter-on-quarter GDP expansion in the last three months of 2014 and a purchasing managers index showed accelerating manufacturing growth.

December saw a storming 11.6pc year-on-year rise in overall products demand, led by heating oil and diesel. But total products demand for 2014 was down by 1.3pc from a year earlier, while the German economy grew by about 1.6pc over the same period. The annual decline in products consumption was led by a 15.8pc slide in heating oil use, as winter weather was milder than a year earlier. Heating oil demand can peak and trough in Germany as canny consumers replenish and drain their stocks, depending on weather and prices.

Gasoline demand was a better indicator of the economic recovery than heating oil, gaining 2.1pc over the year. German gasoline consumption grew by 4pc in the first quarter of last year, slipped by 1.2pc in the second, increased by 0.8pc in the third and by 5.3pc in the fourth. That compares with year-on-year GDP growth in the same three-month periods of 1.4pc, 1.2pc, 1.4pc and 2.4pc. The accelerated gasoline demand growth in the fourth quarter was boosted by lower prices at the pump, but was also reflected in the wider economy.

French motor fuels demand dropped by 3pc from a year earlier in January. But the country’s motor fuels demand had advanced by 7.3pc in December and hit a three-year high for 2014 as a whole.

As with the broader economic data, growth tends to get weaker as you approach the Mediterranean. Spanish imports of refined products dropped by 5.7pc in December from a year earlier, while exports jumped by 36pc. Products demand in Portugal sank by 6.6pc in November. And, in Italy, total products consumption declined by 2.4pc in January.

But there’s a gobbit of good news for Greece. Yesterday, refiner Hellenic Petroleum said its fourth-quarter production hit a record of around 310,000 b/d while sales volumes rose by 37pc from a year earlier, with domestic sales up by 11pc as overall Greek demand rose for the first time since 2009.

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