Global crude oil demand growth is now hostage to China, India: Russell
(Repeats item issued earlier. The opinions expressed here are
those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, June 14 (Reuters) - Discussion in the
crude oil market is degenerating into a single "will they or
won't they" focus on whether the Organization of the Petroleum
Exporting Countries (OPEC) will ease their output restrictions
While the meeting in Vienna on June 22 will undoubtedly
heavily influence the direction of short-term crude prices, the
market's focus solely on supply could be viewed as somewhat
Demand is probably the more important driver of the oil
price over the longer term, and the simple truth is that the
global market is effectively now hostage to just two countries.
China and India have so far this year accounted for about 69
percent of the expected growth in crude oil demand, meaning that
what happens in those two behemoths is likely of far more
importance to the crude market than what may or may not happen
The International Energy Agency forecast last month that
global crude oil demand would rise by 1.4 million barrels per
day (bpd) in 2018, down from an earlier estimate of 1.5 million
For the first five months of the year China's crude oil
imports were 9.21 million bpd, according to customs data, a rise
of 690,000 bpd on the same period in 2017.
India's crude imports were 4.57 million bpd in the
January-May period, up 272,000 bpd from the same period last
year, according to vessel and port data and industry sources.
Together these two countries, the world's biggest and
third-largest crude importers, have brought in 962,000 bpd more
in the first five months of 2018 than in same period last year.
If this pace of growth was maintained for the whole year, it
would mean that China and India would account for the lion's
share of the IEA's forecast for the increase in global demand.
DEMAND RISKS RISING?
Most investors or companies would tell you that having more
than two-thirds of your expected growth exposed to just two
players is extremely risky, yet the oil market seems almost
blase about the outlook for both these countries.
While the majority of economic forecasts are for strong
outcomes in both China and India, they aren't without risks, and
those risks may be rising.
For China there is the perennial threat of credit problems,
with several parts of the economy still highly leveraged and
struggling to service loans.
There is also the rising risk of an escalation of trade
tensions and a tariff war with the administration of U.S.
President Donald Trump.
And then there is the government's policy of reducing air
pollution, which is resulting in a shift to electric cars and
trucks powered by liquefied natural gas (LNG).
For India the greatest risk to its economic outlook is high
energy prices, given its reliance on imported crude and natural
gas, and to some extent imported coal.
The price of a litre of diesel in the capital New Delhi was
67.85 Indian rupees ($1.00) on Wednesday, which is up 27 percent
from this time a year ago.
The price of Brent crude has risen by about 71 percent in
the past year, meaning Indian consumers have been spared the
worst of the increase, but there have to be question marks over
how long the government can lean on the state-owned refiners to
absorb the cost increase.
Overall, there is no immediate reason to expect lower crude
oil demand growth in China and India, but the risks are mainly
angled toward an easing rather than an acceleration.
($1 = 67.5875 Indian rupees)
(Editing by Richard Pullin)
First Published: 2018-06-14 07:00:10
Updated 2018-06-14 14:00:00
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