10 May 2016, London — Brazil’s consumption of gasoline and diesel is falling as the country’s commodity-driven boom falls apart and the economy shrinks.
Brazil’s gasoline sales grew at an average annual rate of nearly 7 percent between 2004 and 2014 while diesel use was up by more than 4 percent per year.
Like many other commodity-exporting economies, the revenue boom stimulated rapid growth in incomes and consumption at home, which in turn became an important source of extra commodity demand.
Brazil’s gasoline sales went up from 400,000 barrels per day in 2004 to 765,000 barrels per day in 2014 according to government data.
Diesel sales grew from 675,000 b/d to more than 1 million b/d over the same 10-year period (“Monthly Statistical Data”, ANP, 2016).
Brazil became one of the largest and fastest-growing oil consumers in the world and the country’s rapid growth was itself a source of upward pressure on oil prices.
But consumption growth began to slow significantly from the middle of 2014 as the price of oil and other commodities tumbled.
From the middle of 2015, gasoline and diesel consumption have been falling year on year, reflecting a shrinking economy.
Brazil’s economic output fell 3.8 percent in 2015 and is expected to decline by the same amount in 2016, according to the International Monetary Fund (“Latin America’s economic slowdown continues”, IMF, April 2016).
In the 12 months ending in March 2016, gasoline and diesel consumption both fell by around 6 percent compared with the prior 12-month period.
Brazil’s problems are mirrored in other major oil exporting economies including Venezuela, Nigeria, Russia, Saudi Arabia and the United Arab Emirates.
During the boom years, all these countries emerged as increasingly important drivers of fuel demand as well as sources of oil supply.
Now the boom has turned to bust, the primary drivers of oil demand have rotated from oil-exporting economies to consuming countries such as the United States, India and China.
The International Energy Agency predicts global oil consumption will rise by 1.2 million b/d in 2016, moderating from 1.8 million b/d in 2015, but still above the long-term average (“Oil Market Report”, IEA, April 2016).
Global oil demand is growing thanks to very low fuel prices and continued expansion in the major economies which has more than offset stagnating fuel demand in the big commodity exporters.
The relationship between oil prices, revenues, incomes and fuel consumption in oil-producing countries is just one example of the positive feedback mechanisms which amplify the instability in oil prices.
But destabilizing feedback mechanisms work in both directions.
At present, the slump in oil prices is helping restrain commodity consumption in exporting nations, prolonging the rebalancing of supply and demand.
In the future, however, as the oil market tightens and prices rise, the extra income will give a big boost to the economies of exporting nations, and accelerate the tightening of the supply-demand balance.
Brazil’s economy, like other commodity exporters, is likely to remain stuck in the doldrums in 2016 and early 2017. But by 2018 and 2019 it should return to growth, adding to the tightening in oil markets by the end of the decade.
*John Kemp is a Reuters market analyst. The views expressed are his own.
Editing – Susan Thomas – Reuters