APPEC: India's robust oil demand not enough to bail out a China-driven slowdown in Asia

India's demand outlook offers a ray of hope to global oil markets, but the incremental volumes won't be enough to offset the impact of slowing consumption growth in China, delegates at APPEC said, limiting the upside for prices in a climate of rising supplies.

China's oil market is three times the size of India, and the slow pace of stock building in Asia's biggest consumer is raising alarm bells, the delegates said, adding that the global oil market might be heading for a period of oversupply of both crude and products in the foreseeable future.

"A deceleration in China's stockpiling is happening as global crude oil supply grows," said Jim Burkhard, vice president and head of research for oil markets at S&P Global Energy, adding that oil markets would witness an increase in gasoline and diesel supply in 2026.

Energy forecasts that rising crude oil production, modest demand growth and a slower pace of stock building in China will lead to a greater supply surplus and bring Dated Brent prices below $60 before the end of 2025. And in 2026, a higher inventory level and plentiful supply mean prices will struggle to average above $60/b. Currently, the 2026 annual average price for Dated Brent stands at $56/b, but upside risks could push prices above $70/b.

"US President Donald Trump also wants low oil prices -- as low as $50/b," Burkhard added.

The India growth story

Delegates at APPEC, which is hosted by Energy, said India was rapidly emerging as a significant player in the Asian oil landscape, driven by robust economic growth and increasing fuel consumption. Analysts project that India's oil demand will continue to rise, potentially surpassing China's growth rate in certain segments. This optimistic outlook reflects the country's economic dynamics, characterized by rising incomes, urbanization, and a growing vehicle ownership rate.

Saad Rahim, chief economist at Trafigura, emphasized the critical factors behind this growth. "A key driver of India's oil demand is its unique vehicle composition, with a higher proportion of two-wheelers than four-wheelers. In addition, government initiatives will inevitably lead to increased energy consumption, which is vital for supporting India's expanding economy."

Frederic Lasserre, global head of research and analysis at Gunvor Group, echoed Rahim's sentiments, highlighting the broader implications of India's energy strategy.

"India's strategic pivot towards energy diversification has opened new avenues for oil procurement. Actively exploring partnerships with various oil-producing nations ensures stable supply chains and enhances energy security," Lasserre said, adding that this proactive approach not only secures energy resources, but also positions India as a competitive player in the global oil market.

China stockpiling, prices

"One has to remember that in terms of oil demand growth and volumes, India is not China," said Fereidun Fesharaki, chairman emeritus at FGE.

China imported 11.34 million b/d of crude oil over January-August, up 2.9% year over year, data from the General Administration of Customs showed. Participants said that procurement of China's crude reserves would be notable when oil prices fall below $65/b and would accelerate when prices are $60/b.

In the first half of the year, inventory builds were more likely for commercial purposes, especially for the independent sector to store sanctioned crudes, sources said. And for the rest of the year, a new phase of storage capacity would be ready for additional barrels, although they did not disclose the volume the government would buy for stockpiling.

China relies on imports for 70% of its crude supplies, resulting in continuous stockpiling even though the country's petroleum liquid demand is expected to peak in 2027, some APPEC delegates added.

On the supply side, OPEC+ announced Sept. 7 a 137,000 b/d increase in output for October. Having already completed the unwinding of 2.2 million b/d of OPEC+ voluntary cuts, this may represent the beginning of further unwinding of a 1.65 million b/d tranche of production cuts first announced in April 2023. Energy anticipates that this move would be bearish for oil prices.

"We are in an oversupply oil market in the short term. To the extent Brent oil drops below $60/b, it will boost consumption in Asia. That could be a tailwind for growth," said Paul Gruenwald, global chief economist at Energy.