India's oil consumption is expected to be at 7-8% this year.
India's oil consumption is expected to 7-8% this year, outpacing China's demand growth for the third consecutive year, as impact of demonetization is likely to be short-lived, according to Platts. LPG and transport fuels demand will rise, while new petrochemical projects would a boon for naphtha demand. "The dramatic rise in India's oil demand shows no signs of faltering... the country will remain a driver of Asian growth in 2017," Platts Analytics said in a note. The cash crunch following move to demonetize 86% of currency is expected to "temporarily dampen the country's appetite for oil products in the first quarter, or maybe a little longer," it said.
"But gains in oil demand that the country is set to achieve from the 'Make in India' initiative -- which aims to raise the share of manufacturing in GDP over the next few years -- will more than offset the negative effects of demonetization," Platts quoted analysts as saying. The government's clean fuel drive, sharp anticipated growth in transport demand and air travel, and the country's insatiable growth for petrochemicals will act as a boon for petrol, jet fuel, LPG and naphtha, helping oil products to post close to double-digit growth in 2017 -- similar to that seen last year -- if not higher.
"For the third year in a row, India's oil demand growth will outpace China's demand growth," Platts Analytics said, adding that it was expected to grow at about 7% to 4.13 million barrels per day in 2017, compared with 3% in Chinese oil demand to 11.5 million bpd. "While growth fundamentals for oil in India remain high, slower growth in the initial months of 2017 because of demonetization might pull down the overall oil demand growth in 2017 to a shade below 2016 levels of 9%," it said. H2 2017 oil demand will see limited impact from demonetization as the initial economic impact peters out and government spending, particularly on infrastructure, rises from increased tax collection. If implemented correctly, demonetization will lead to a jump in private investment and more public spending on welfare measures, Platts said.
Since coming to power in 2014, the BJP-led government has undertaken a series of initiatives to help boost LPG penetration across the country. It has aggressively pushed to expand the LPG dealership network in the country, while it has urged the more affluent class to give up LPG subsidies and pass those savings to the economically poorer sections of society. LPG demand was expected to grow by about 10.5% year on year in 2017, compared with an estimated 11% in 2016. Diesel demand is expected to grow by about 4.5-5% in 2017, slightly lower than 2016 levels, as demonetization had affected rural incomes. But naphtha demand is expected to show double-digit growth.
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