India’s crude oil demand this year will continue to rise at the same rate it rose by in 2018, which made it the second-biggest driver of global demand growth, energy consultancy Wood Mackenzie has forecast.
An Oilfield Technology report citing Wood Mac analyst Aman Verma noted in 2018 that India’s demand growth accounted for 14 percent of the global total, at 245,000 bpd year-on-year, making Asia’s third-largest economy second only to the United States and ahead of China in terms of oil demand. In 2018, India’s crude oil consumption exceeded 4 million bpd. According to an OPEC forecast, this will rise by as much as 5.8 million bpd in the period until 2040.
Regarding the factors that would contribute to this development, Verma noted rising car sales, especially in commercial vehicles as the Indian government pursues an ambitious infrastructure development plan, along with the demand-based rather than tax-based approach to logistics. The latter was the result of a shift made possible by the introduction of a goods and services tax that eliminated interstate taxes, the analyst explained. Related: Why OPEC+ Output Cuts Take So Long To Materialize
A third factor that will add to India’s crude oil demand growth specifically this year is the general elections campaign, which will lead to more traveling, Verman said, adding this will boost particularly diesel demand during the first half of the year.
As bright as the outlook is, headwinds remain, chief among them the international crude oil price volatility. Last year, fast-rising benchmark prices led India’s energy minister to call on suppliers to reverse their production-cutting agreement. India depends on imports for as much as 80 percent of the oil it consumes.
However, the potential negative effect of this factor on overall demand for crude oil will be limited: although higher prices at the pump dampen demand for new car and hence fuel consumption, India’s middle class is growing and this will offset the negative effect partially.
By Irina Slav for Oilprice.com
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India’s oil demand and imports have been rising at an average annual rate of 5.58% and 11% respectively making it the world’s second-biggest driver of global demand growth after China. In 2018 India accounted for 15% or 245,000 barrels a day (b/d) of the world’s oil demand annual growth.
India’s crude oil consumption in 2018 amounted to an estimated 5.09 mbd and is projected to rise to 5.39 mbd in 2019. Imports amounted to 4.38 mbd in 2018 accounting for 86% of demand and is projected to rise to 4.86 mbd in 2019 accounting for 87% of demand.
India has been significantly increasing its oil imports from Iran since Iran has been providing oil cargo insurance and offering India easy payments terms. Moreover, India is settling payments for its Iranian crude imports in its local currency, the Rupee, thus evading US sanctions on Iran.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London