India offers potential for long-term oil demand growth as the economy is set to grow at a robust pace, shifting the focus from China where oil demand could peak much earlier, delegates said at the Asia Pacific Petroleum Conference 2023 organized by S&P Global Commodity Insights.
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"China has been supporting the global crude demand for the past 20 years, but in the coming three to five years, China's demand is going to peak and then it will start to decline. The global market has to look at India or other countries for demand resilience," FGE Chairman Fereidun Fesharaki told a panel on China, India and Russia.
S&P Global Commodity Insights shared similar views on the trend.
"Peak oil demand in China will come earlier than in India where demand may continue to keep growing for much longer given the relative lower base, economic expansions and a young population," said Kang Wu, global head of demand research at S&P Global.
Indian refiners attending APPEC also said the country's peak oil demand was nowhere near as it is still pursuing refinery expansion plans.
"China's demand will taper off a little but countries like India are coming up and the demand is growing. India will continue to require oil and gas maybe for a couple of decades, although it would transition and move over to renewables by that time," said Vivek Tongaonkar, finance director and CFO at Mangalore Refinery & Petrochemicals.
On the short-term outlook for oil demand, speakers said 2023 would turn out to be the last year of demand recovery from COVID-19. From 2024 onward, the rate of growth would start to slow down.
"This year, world oil demand will grow by 2.4 million b/d but next year it could be 1.2 million b/d," Fesharaki said.
Kang from S&P Global highlighted slightly different numbers, saying world oil demand is expected to increase by 2.2 million b/d in 2023, with China contributing about 942,000 b/d. Jet fuel demand, which is estimated to rise 1 million b/d in 2023, will be the main driver of the global oil demand recovery from COVID-19.
"Looking into 2024, global jet fuel demand is expected to increase by about 440,000 b/d, primarily driven by international airlines. While the global oil demand growth will slow to around 1.67 million b/d next year before a likely demand peak in 2027," Kang added.
Asia's total oil demand is forecast to increase 3.8%, or 1.39 million b/d, year over year to 38.1 million b/d in 2023, according to S&P Global.
Russian crude flows
Russia has sprung to become India's top crude oil supplier in 2023. India received 1.82 million b/d of crude oil from Russia, accounting for approximately 37.2% of total crude imports from January to August. This is a jump from the same period last year when India imported only around 470,000 b/d crude oil from Russia, constituting roughly 10.2% of total imports, S&P Global data showed.
India was actively buying Russian crude because of the discounts offered as well as the ability of the country's refiners to process those crudes, APPEC delegates said.
"Indian refineries have very high Nelson Complexity Index. They are well positioned to process both heavy and sour crudes, as well as Russian crudes. Although heavy and sour crudes are preferred, the discounts on Russian crude have been good enough to attract those volumes to the country," Sanjay Choudhuri, finance director at Numaligarh Refinery Ltd., said.
India's crude oil imports from Russia are projected to constitute 35%-40% of overall imports in 2023, which could translate to around 1.9 million to 2.2 million b/d, as long as Russian prices remain competitive compared to alternative sources, such as the Middle East and Africa, according to S&P Global.
Russian volumes to China have also grown following the Russia-Ukraine war but at a much lower rate than prewar levels.
"Before the war, China was anyway importing about 1.6 million-1.6 million b/d of Russian oil. Now, it has risen to about 2 million b/d/ So the growth is not that huge, compared to what we have seen in India. The bulk of the incremental growth in China has come due to buying by the independent refiners," Kang said.
But he added that the overall volumes of Russian oil flowing to China and India may have reached the peak and there may not be bandwidth for the two countries to take in more.
Russian seaborne oil exports fell to an 11-month low in August, according to tanker tracking data, as heavy refining maintenance hit oil products exports while output cut pledges and Black Sea tensions continued to limit crude flows. Total Russian shipped crude and oil products exports averaged 5.27 million b/d, the lowest since September 2022 and 650,000 b/d below prewar levels, according to S&P Global Commodities at Sea data.
Russia-origin seaborne crude shipments averaged 3 million b/d in August, little changed on the month, but about 800,000 b/d lower compared with the April-May average and below the average prewar levels of 3.1 million b/d, CAS data showed. Crude shipments to India, currently Russia's biggest oil buyer, fell to a six-month low in August, the data showed.