The key parameters affecting annual oil demand growth in are economic activity, the share of oil in the energy mix, the efficiency of oil use, oil prices (both in absolute terms and relative to competing fuels) and the weather. These factors are taken into account in the IEA’s short-/medium-term oil demand model.

The sources of real GDP growth projections include the Organisation for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), the World Bank (WB), the Asian Development Bank (ADB), Consensus Forecasts and government projections, among others. These assumptions are adjusted as often as necessary in periods of economic turbulence; otherwise, there are generally revised twice a year.
Forecasts are generally based on the assumption of normal weather, and thus take into account deviations from normal conditions (defined as the previous 10-year average). The use of oil products for heating or cooling and power generation is indeed affected by temperature variations. However, oil use is also affected by variations in other climatic conditions. Snow storms tend to reduce road traffic. Low rainfall (and hence low reservoir levels) can reduce hydro power output and low river levels can affect nuclear power output, both of which can lead to increased oil use for power generation. Conversely, high rainfall and high reservoir levels can curb oil use for power generation.

Changes in the price differential between oil and competing fuels can lead to interfuel substitution in both the power generation and industrial sectors, with oil being displaced when competing fuels such as coal and natural gas become much cheaper. Similarly, increases in end-user prices can dampen demand growth and, more significantly, can affect the timing of purchases. For example, if a tax is announced in advance, end-consumers or wholesalers will tend to increase purchases ahead, leading to a corresponding decrease in the next month. Consumers may also occasionally anticipate the timing and size of an unannounced tax increase. Thus, to assess the potential effect on demand growth of a tax change, it is desirable to know at what time of the month it occurred, whether it was announced in advance and, for annual increases, its size in relation to that of the previous year.

Another factor which can affect the timing of the purchases and hence the month-by-month change in demand is the perception of future oil prices. Since oil is bought in local currency but traded internationally in US dollars, changes in exchange rates as well as in cargo market prices can affect demand. If the market is in backwardation there will be a tendency to defer purchases and draw stocks and the opposite will occur if the market is in contango. For example, the timing of purchases by major electricity-generating companies can significantly affect the pattern of short-term sales, while the timing of consumer seasonal stock build of heating oil can also have a substantial influence on the summer pattern of deliveries.
Finally, two other factors can affect the monthly pattern of sales. These are the number of working days in the month and strikes by oil delivery workers. Some holidays, such as Easter, may occur in different months and thus distort seasonal patterns. Strikes can clearly lead to a permanent or temporary reduction in deliveries.

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