From Bloomberg via Advisor Perspectives, May 27:
The Oil Market Has a Bigger Problem Than a Slowing China – India
India is the stuff of dreams for OPEC and Big Oil: a rapidly developing nation of nearly 1.5 billion people where petroleum consumption is still in its infancy. It’s the next China — so the theory goes. Perhaps one day, but in 2025 it’s still the stuff of dreams.
For years, energy economists have talked about “structural tailwinds” — including benign demographics, a burgeoning middle class and accelerating urbanization and industrialization — that would propel Indian oil demand.
Those phenomena turned China into the world’s engine of petroleum demand growth (along with everything else) for a quarter century. From 2000 to 2025, the Asian giant added an average of 485,000 barrels a day every year to global consumption. Now, the boom is ending.
Weighed down by slower economic growth and the rapid uptake of electric cars, Chinese oil demand will expand by 135,000 barrels a day this year, according to the International Energy Agency. Except for the pandemic period, that would be the smallest annual increase since 2005.
If the bulls were right, India would be taking over by now. But it isn’t: For the last three months, its oil demand growth has been contracting. As things stand, India consumption may increase by as little as 130,000 barrels a day this year, about half what many thought a year ago; if confirmed, that would be the smallest annual increase in a decade, excluding the pandemic period.
Until now, the consensus – but perhaps optimistic -- view was that New Delhi would add about 1 million barrels of extra demand from 2025 to 2030. No other country was expected to see such large increases.
Even if large when compared to other rapidly growing economies – Brazil, Indonesia and Pakistan, to name a few — that increase would still be far smaller than what Beijing managed during its heyday. For example, from 2010 to 2015, Chinese oil demand increased by a cumulative 3.7 million barrels a day.
The expectation that India would add lots of extra oil consumption is in part anchored in comparing it today with China. The average Indian consumes today about 1.4 barrels of oil a year, well below the 4.3 barrels a year of the average Chinese.
Before we finish, here’s a detour into commodity demand 101: The amount of oil that a country consumes is, for the most part, a function of two factors: population and incomes. The sweet spot for commodities demand starts when annual per capita income rises above $4,000. At that point, countries typically industrialize and urbanize, creating a strong, and sometimes disproportionate, relationship between further economic growth and extra commodity demand. China hit the commodity sweet spot around 2001. And oil demand boomed. India hit the sweet spot five years later, around 2006, but demand there didn’t balloon....*****
...To understand why one needs to dig into the details of its gross domestic product. While China relied on oil-intensive heavy industries, manufacturing, and large investment in public infrastructure, India did the opposite, growing its services, which use comparatively less energy....
....MUCH MORE
