Feb. 19, 2021
A misconception we come across often in our industry is that oil demand and crude demand are one and the same. To clear this up right away, when we are discussing crude demand, we refer to demand at the refinery level. Oil demand on the other hand includes the total demand of refined products at commercial and industrial markets as well as other products, which do not require crude oil refining.
Another, perhaps, misunderstood element in the analysis of crude and oil demand is the relationship between refinery capacity and crude demand. While there is a positive correlation between the two, it is in fact refinery utilization (total crude intake divided by total capacity) that eventually dictates the levels of crude demand at the refinery level as well as the implications for crude tanker demand.
In our analysis of refinery capacity development, we do see significant additions, mainly in the East of Suez markets, reaching just over 4.0 million b/d. The utilization of this capacity would be determined by the underlying product demand. Throughout our forecast period to 2025, we observe increasing oil demand year-on-year, surpassing 2019 levels (Figure 1). However, on the crude demand side, while we do see an increase year-on-year following the disastrous 2020, total levels appear to have peaked in 2019. The question that arises is why.
One reason is that if we look at oil demand by product, we expect to find more relative growth in non-core products including LPG, but also ethane, butane and other NGLs. These products are less frequently produced as part of the refining process, but rather are produced as by-products of shale oil and natural gas production. Furthermore, we note that as biofuel production increases, it will increasingly be blended in core product, particularly gasoil and gasoline, lessening demand for crude oil in the traditional refining process. Lastly, the transition to alternative fuels and overall decarbonization efforts are an overarching theme that will continue to move demand away from hydrocarbons over the longer term.
Read more about oil demand development and other topics in the recently published 2021-2025 Tanker Market Outlook.
Figure 1 – Oil and Crude Demand Growth – Base Factor of 1
Source: McQuilling Services