Britain's Oil Demand is Growing Again -Kemp

UK petroleum consumption is growing at some of the fastest rates for a decade, as strong economic growth and cheaper fuel prices spur increased use.

Consumption of petroleum products rose by 1.6 percent in the first six months of 2015 compared with the same period a year earlier, according to the UK Department of Energy and Climate Change (DECC) (http://link.reuters.com/zud75w).

Consumption has been growing consistently since the third quarter of 2014, coinciding with a maturing economic recovery and a sharp drop in oil prices (http://link.reuters.com/wud75w).

Like most of the other advanced industrial economies, Britain's consumption of petroleum products peaked in 2005, then declined sharply as oil prices climbed to more than $140 per barrel in 2008.

The recession took another big chunk out of oil consumption, but even as the economy recovered between 2010 and 2014, demand mostly continued to fall as high prices encouraged conservation.

In the first half of 2014, immediately before prices started to decline, Britain was consuming 36,000 tonnes per day, almost 18 percent, less petroleum than in 2005 (http://link.reuters.com/cyd75w).

But between the first half of 2014 and the first half of 2015, consumption rose by more than 2,500 tonnes per day, around 1.5 percent.

Very roughly, Britain's petroleum consumption declined by 290,000 barrels per day between 2005 and 2014 and has since recovered by about 20,000 barrels per day, using standard conversion factors.

Britain has been experiencing a long-term shift from gasoline to diesel for passenger cars, which complicates comparisons for the consumption of individual fuels over time.

But in recent months, gasoline consumption has been declining more slowly, and diesel has been growing faster, than the previous trends, which the government attributes to cheaper prices.

Traffic on Britain's roads has been rising at the fastest rate since before the recession according to the Department for Transport (http://link.reuters.com/fyd75w).

Deliveries of aviation turbine fuel to UK airports are also up by around 1.4 percent compared with a year ago, reflecting an increase in passenger numbers, DECC said on Thursday.

The number of passengers landing or flying from UK airports, excluding those in transit, was up by 7.5 percent in the first quarter of 2015 compared with a year earlier, according to the UK Civil Aviation Authority.

There have also been significant increases in consumption of naphtha, an important feedstock for the petrochemical industry, and heating oil.

The rise in petroleum consumption over the last 12 months has reversed only a very small part of the massive decline in demand over the previous nine years.

But the key point is that consumption is now increasing rather than declining, a change in trend that is also evident in the United States.

Falling consumption in the OECD economies contributed to excess supply in the oil market and the price crash between June 2014 and January 2015.

Stabilisation of OECD consumption, and even renewed growth, is an essential part of the necessary rebalancing and reconnection of supply and demand.

(By John Kemp)