Surging Oil Demand in India

The increase in demand for oil gives credence to the fact India’s economy is growing at a rapid pace.  Oil product consumption in India expanded at the fastest pace in a decade in October as petrol prices fell amid a global commodity slump. “There is no doubt of a pickup in the economy, and that’s fueling India’s oil demand,” said Amrita Sen, a London-based analyst with Energy Aspects Ltd. who holds an economics degree from Cambridge University. “This is a clear indication that India’s middle class is going out and spending.” The economy is growing at a rate of greater than 7%, according the Economist reports. This is a clear sign of bigger things to come and that the economy is picking up steam quickly.

OIl

Oil consumption in October grew at the fastest pace in a decade!

Oil imports are set to rise to an estimated 90% by the year 2040, from a present 70%, as domestic energy consumption rises according to International Energy Agency [IEA]. This is a strong indicator of where the country is headed in terms of economic growth and developments, as oil is a strong indicator of wealth and affluence. With this increase in demand, India will be pinned as the second biggest oil importer only behind China, making it a major contributor in world energy demand in the next 25 years. Plans are being made to import more of the country’s oil from Middle East and parts of Latin America.

Major reasons behind this surge in demand in the Indian economy revolve around the country’s recent economic growth. More and more rural families are moving to urban areas for better job outlooks and higher standards of living, leading to a greater need for transportation, which is a benefactor to overall economic growth within the country. Declining prices caused by an oversupply of crude globally are also reasons behind India’s decision to import more oil. Going forward, India’s GDP is expected to grow annually by 7% plus making it the fastest growing economy, surpassing China, globally. This will induce a greater demand for crude in the near future. Also, just look outside the window – you are bound to notice the increase in road traffic! Pune, and be it Delhi or Mumbai – all major metropolises’ and even cities everywhere are having an increase in the number of vehicles!

Importing figures were actually supposed to reduce over time according to Narendra Modi’s government outlook, but because of insufficient reserves and poor policy responses within India, reserves had to be taken from foreign sources. India’s crude oil production is not able to meet the rampant demand of consumers and businesses alike, as reserves become depleted and the rate of extraction falls. This dependence on foreign oil sources is not good for the economy, as it would induce a trade deficit and the country would be importing more than it would be exporting. This will also weaken the value of the Indian rupee relative to other currencies in the global marketplace.

 

References

http://www.bloomberg.com/news/articles/2015-11-26/surging-fuel-consumption-shows-india-s-economy-picking-up-speed

Image

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