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Oil Prices Usher in another Major Benefit: Indian Demand is Expected to Open a New Chapter
The nearly week-long rally in oil prices seems to have reversed the market's pessimistic view, with U.S. crude futures up 5% since last Friday. In addition to OPEC's intervention to save the crisis and the decline in U.S. crude oil inventories, India also brought good news.Indian oil demand rebounded in April after three consecutive months of decline, reflecting the country's gradual emergence from the shadow of the demonetization of high-value currency notes.
According to statistics from the Petroleum Planning and Analysis Department under the Ministry of Petroleum, India's fuel consumption increased by 3.3% in April to 16.79 million tons. Among them, diesel, which accounts for 40% of fuel demand, increased by 2.8% to 6.96 million tons, and gasoline consumption increased by 2.5% to 2.09 million tons.
In November last year, India's Modi government suddenly announced the abolishment of 500 yuan and 1,000 yuan rupee banknotes, which was a shock. India's oil consumption fell by 5.9% in January, the largest decline in 13 years; demand fell by 3.1% in February and 0.7% in March.
"The rebound in demand in India will increase India's crude oil imports, which will drive growth in global oil consumption," BMI analysts said in an email.
India's crude oil imports account for more than 80% of its total consumption, and the International Energy Agency predicts that India will become the fastest growing consumer by 2040.
Oil demand is climbing rapidly in the world's fastest-growing major economy, with growth expected at 7.4% through March, according to Bloomberg estimates.
Saudi Arabia's oil minister said last Monday that oil-producing countries will "make every effort" to balance the oil market, and he expects the global production reduction agreement to be extended by the end of this year or beyond. The Russian Energy Minister also expressed support for extending the OPEC production reduction agreement beyond 2017.
Oil prices fell by more than 12% between April 12 and May 5. Analysts explained that the plunge in oil prices was mainly due to the market's declining confidence in OPEC's extension of production cuts, concerns about the growth of U.S. shale oil production, weakening demand in China and India, high crude oil inventories, and technical factors.
With OPEC's firm support for extending production cuts, Indian demand picking up, and the decline in crude oil inventories accelerating, oil prices may continue to rise in the coming period and rise back above $50.
