India is in the process of surpassing China as the world’s most important country when it comes to analysing energy markets. The country’s consumption of various commodities such as coal and oil is still much smaller than China. While China has dominated energy markets since the turn of the century, India’s rate of growth will be much more significant in the years ahead.
China’s GDP growth dipped below 7 percent in 2015, the slowest rate in a quarter century. Meanwhile, India’s economy grew at a 7.3 percent annual growth rate in the fourth quarter of 2015. This is translating into robust demand for commodities. India’s oil demand jumped by 12 percent in January compared to a year earlier, hitting 4.2 million barrels per day (mb/d). India is now the world’s third largest oil consumer, recently surpassing Japan. It now sits just behind China and the United States.
More importantly, India is one of the few countries where oil demand growth is vigorous. India only produces about 1 mb/d of crude oil and other liquids, which means that it the bulk of its consumption has to come from imports. Its import dependence will likely rise with time. Refining capacity is expanding, jumping to a record 4.85 mb/d in January. More refining capacity means refiners need more crude imports. And the Indian government is considering relaxing some import restrictions to allow refiners to import more crude.