India to be Leading Driver for Oil Demand: Wood Mackenzie

India tipped to be a driving force for crude demand. File Image / Pixabay

The crude market in the short term may be volatile at best, but Wood Mackenzie provided more evidence that long term prospects seem promising, with India estimated to account for a third of global demand growth due to demand increasing by 3.5 billion barrels per day (bpd) from 2017 to 2035.

The consultancy's findings come amid another seesaw turn in this week's crude market, with oil on Wednesday rising over 1 percent on the strength of a drawdown in U.S. crude  stockpiles and on news of falling Iranian crude shipments.

Wood Mackenzie predicts that India is set to overtake China as the biggest source of growth for oil demand by 2024, thanks to its rapidly expanding middle class; the consultancy also noted that an oil shortage is already imminent, with the country only expected to add 400,000 bod in firm refinery capacity out to 2023.

Sushant Gupta, research director for Wood Mackenzie, told media, "We think the most likely situation is that India would need between [3.2 million and 4.7 million bpd] of new capacity out to 2035 to remain self-sufficient in transport fuels, so we are talking about a future capacity which is 1.7 to 2.0 times the current; this is clearly an uphill task, unless domestic refiners can commit to their planned capacity additions."

Gupta suggested that with a global surplus of gasoline expected in the long run, India could consider importing the fuel.

From a world perspective, the positive impact of India's rise will be somewhat tempered by China's decline: Gupta warned that the second-largest oil consumer in the world is set to see a decline in oil demand growth from 2024 to 2035, due to the fact that electricity and natural gas are displacing the need for gasoline and diesel, and a more efficient freight system and truck fleet will mean less diesel demand.

In the meantime, West Texas Intermediate on Wednesday settled up 98 cents, or 1.4 percent, to $69.51 per barrel, while Brent rose $1.18, or 1.6 percent, to $77.13 per barrel.

The gains occurred in the wake of the Energy Information Administration reporting that U.S. crude inventories fell 2.6 million barrels last week, exceeding the 686,000 barrel draw forecast by analysts polled by Reuters.

Also, preliminary trade flows data on Thomson Reuters Eikon show that Iran's crude oil and condensate exports in August are set to drop below 70 million barrels for the first time since April 2017; the Islamic republic's August loadings are estimated at 2.06 million bpd versus a peak of 3.09 million bpd in April.

Running contrary to suggestions made by Wood Mackenzie, Jim Ritterbusch, president of Ritterbusch and Associates, remarked that the reduction in Iranian exports "imply some global supply tightening unless OPEC and Russia boost output from already elevated levels."

Cluttering a clear picture of the state of the global market yet further, the Organization of the Petroleum Exporting Countries (OPEC) will discuss in December whether producers can compensate for a sudden drop in Iranian oil supply after U.S sanctions against Tehran start in November, said Alaa al-Yasiri, head of Iraq’s state-oil marketer SOMO.

He added that a sudden drop in Iran oil exports will have a negative impact on prices and market fundamentals.

Earlier this week Stephen Schork, founder and editor of The Schork Report, stated clearly what analysts have been intimating for some time now: that the crude market "is being kept afloat on headlines."