Pedro Antonio Merino Garcia is Repsol’s Director of Studies and Analysis of Environment. Trade expert and State Economist, he holds a degree in Economics by the Autonomous University of Madrid and an MBA by the Business Administration Institute. He has worked at the oil company since 2000 and previously served at the Ministry of Economy, where he was involved in the European negotiations for the launch of the Euro. He was also part of the International Monetary Fund between 1992 and 1994.
According to the International Energy Agency (IEA), the demand for oil products went up by 1.85 million barrels per day in 2015, increasing by 2 percent. This figure caused surprise, since the first forecasts from December 2014 estimated just 900,000 barrels per day, half of the amount reached.
It is worth mentioning that estimates failed more significantly in developed countries, where improving economic conditions and price decrease caused demand to rise by one percent, instead of the reduction initially expected. This phenomenon was seen especially in the European countries that are members of the OECD (where forecasted demand growth went from -0.4 to 1.9 percent); and among them, of course, is Spain.
In the case of our country, we must remember that the energy sector has been marked by the deep economic crisis of 2008-2013, which provoked a generalized drop in energy demand. The decrease in total oil product demand in 2013 was especially sharp (-8.9 percent, as compared to 2012), related to a significant GDP annual decline (-1.7 percent), an even larger drop in private consumption (-3 percent), a strong euro and high crude prices.
Since 2014, economic recovery has boosted energy demand. That year, the GDP went up by 1.4 percent, and while the total demand of oil products continued to decline, it did so at a much lower level than the drops recorded in 2013. Finally, the total oil product demand in Spain in 2015 also grew, by 2.5 percent, linked to a 3.2 percent increase in GDP, and a very important drop in crude prices. Brent price stood at an average $52.2 per barrel in 2015, far below average levels recorded in 2014 ($99.4 per barrel).
Even though the demand for oil products is more sensitive to the evolution of economic indicators rather than to changes in oil prices, the effect the decrease in these prices has had on the rise in demand is undeniable. So, while the effect of that economic activity on oil product demand is around 0.6 percent (a one percent economic growth should result in a 0.6 percent increase in demand), we estimate that the effect of final product pricing on demand is at around -0.12.
Growth in demand in 2015 was practically generalized by product type, except for diesel and heating fuel demand. Demand for LPG, diesel, excluding that used for heating, kerosene, and other products, experienced very significant annual growths by 12.8 percent, 5.6 percent, and 3.1 percent, respectively, which are rises according to economic recovery, both in industry and transport, and the decrease in crude prices. In the case of LPG, the spectacular evolution of demand in the petrochemical industry is notorious, with an annual average increase of 74.1 percent in 2015.
The favorable evolution of diesel demand, excluding those used for heating (+5.6 percent in 2015), was generalized in all its components. Demand for automotive diesel grew by 4 percent, due to economic recovery and consumption; while B diesel increased by 4.1 percent, benefiting from public tenders made before the different call for elections of 2015. Lastly, demand for other diesels, including those earmarked for international navigation, rose by an annual 27 percent, benefiting from a drop in fuel oil demand, recording an average annual increase of 4.2 percent, according to the positive development of air transportation.
Finally, demand for other products recorded annual grows of 3.1 percent. Economic recovery was generalized in all its components, both those generally associated with industrial, petrochemical, and consumption activities (lubricants, gas, and others) and those linked to construction (asphalt and cement).
Additionally, the extraordinary drop in oil prices in 2015 − 47 percent in Brent’s case and 37 percent if we consider prices in euros − has resulted in energy bill savings of up to €11 billion. It has also enabled a rise in the available income by around 0.5 percentage points.
This positive development of the demand is expected to continue in 2016, with an increase forecasted around 2 percent, with estimates indicating that the Spanish economy will grow by around 2.8 percent, and supposing that oil prices in euros will remain at levels similar to those of 2015.