India is replacing China as the center of the world’s oil demand growth as it’s economy expands faster than any other major country and a growing middle class has more money to spend.
India’s oil demand grew by 300,000 barrels a day last year, double the average rate in the previous decade, according to a report by The Oxford Institute for Energy Studies this month. China’s growth has slowed to 300,000 barrels from an average 500,000 barrels in the decade to 2013 as the government moves the economy away from heavy industry, according to the report.
Since the turn of the century, China has guzzled oil as its economy expanded, helping drive up crude prices to above $100 a barrel. A slowdown in this growth in the past few years and a surge in production from the U.S. to Russia and Saudi Arabia sent prices crashing to below $30 a barrel, pummeling oil-producing nations’ economies. For them, India is emerging as a new ray of hope for demand.
“In this new era of slower Chinese growth, a new contender has emerged: India,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., and Anupama Sen, senior research fellow at Oxford Institute for Energy Studies, wrote in the report. “Structural and policy-driven changes are underway which could result in India’s oil demand ‘taking off’ in a similar way to China’s during the late 1990s.”
As living standards improve, Indians are buying more cars and the government is looking to boost the share of manufacturing in the country’s gross domestic product, which traditionally has been services-led. Diesel consumption increased 6.4 percent in the first 10 months of the financial year ending March 31 compared with the same period a year earlier, while gasoline use has risen about 14 percent, according to data from the nation’s oil ministry.
The International Energy Agency estimates India will consume 4.2 million barrels a day of oil this year, surpassing Japan’s 4.1 million barrels. The South Asian nation briefly overtook Japan as the world’s third-biggest oil consumer in the second quarter of last year.
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“In recent months, a consensus view has been forming that India will be replacing China as the center of the world’s oil demand growth,” energy specialist shipbroker Poten & Partners wrote in a March 11 report, adding China’s oil demand grew at a compound annual growth rate of 7.75 percent between 2000 and 2005. “If India were to start growing at those rates, this would provide a significant boost to both oil and shipping markets.”
India’s economy is estimated to grow 7.6 percent in the year ending this month, the highest among emerging markets. China expanded 6.9 percent in 2015, the slowest pace since 1990. Total vehicle sales rose 11.8 percent in February compared with a year earlier, according to the Society of Indian Automobile Manufacturers.
The government expects the country’s oil demand to increase 7 percent in the year ending March 31.
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