India's growing economy to fuel oil demand: Opec

The Organisation of Petroleum Exporting Countries (Opec) has projected that a rise in India’s gross domestic product (GDP) would lead to increased oil consumption next year. India oil demand was not affected by the economic crisis in 2009, and next year’s oil usage is forecast to grow further. All sectors are seeking more energy and new vehicle registrations are expected to continue the fast growth of 2009. These factors would push up oil demand by 15 per cent, making it the fastest growing product in terms percentage rise, Opec said.

The organisation in its monthly oil market report for December said Indian oil consumption was not affected during 2009 due to a number of factors such as strong GDP growth, low prices of transport fuel and a boom in new car registrations.

Improved economic activity, the rise in new vehicle registrations, festival season have pushed up oil demand by 19 per cent in October.

Diesel consumption grew on increased demand from industry and agriculture. The demand for other industrial fuels such as liquefied petroleum gas also increased. As a result of the strong transport and industrial fuel demand, October oil demand in the country grew 12 per cent, or 0.3 million barrel per day (mb/d) compared with October 2008. The country’s oil demand is forecast to grow by 0.14 mb/d y-o-y in 2009 averaging 3.0 mb/d. Considering better-than-expected Asian oil consumption, Other Asia oil demand growth was revised up slightly by 50 tb/d to average 9.5 mb/d in 2009.

Opec noted even as various world economies were affected by the recession, the Indian economy grew 7.9 per cent at factor cost in the July-September quarter of 2009, compared with 6.1 per cent in the preceding quarter. India’s industrial sector maintained a robust pace of output growth in September – firms increased production by 9.1 per cent y-o-y, following an 11 per cent increase in August. Over the third quarter as a whole, industrial output growth averaged 9.1 per cent y-o-y, compared to 3.8 per cent in the second quarter. India’s merchandise trade deficit narrowed to $8.8 billion in October against $11.7 billion a month earlier, as the rate of decline in export revenue decelerated to a ten-month low.

The value of exports dropped 6.6 per cent, less than half the 13.8 per cent rate of contraction posted in September. The rate of decline in exports has been gradually coming down since the 33.3 per cent fall in March compared with March 2008.

The world economy is forecast to grow at 2.9 per cent in 2010, following a contraction of 1.1 per cent in 2009. Government measures helped to cushion the downturn. However, this has come at a price of unprecedented debt to GDP ratio. While the Organisation for economic Cooperation and Development (OECD) is expected to grow at 1.3 per cent in 2010, the bulk of growth next year will be contributed by non-OECD countries with China and India expected to grow at 8.5 per cent and 6.5 per cent, respectively.

The main challenges for 2010 will be the extent of recovery in household consumption within OECD as well as the health of the banking sector which still appears to need government support.