Having doubled its oil demand growth in 2016, India outpaced China's growth in two quarters last year and is set to repeat this feat for the full year in 2017, a report said, adding that India is a key driver of global energy consumption.

A clean fuel drive by the government, a surge in residential and transportation demand, and a strong uptick in petrochemical activity are all driving hydrocarbon consumption higher across India, explained the analysis titled “Global Energy Weekly: India on an oil binge” from Bank of America Merrill Lynch.

Even then, the Indian government recently decided to eliminate high denomination rupee bills to fight corruption and tax evasion. Demonetization of 86 per cent of its cash base and the ensuing freeze in activity hit oil demand late last year’

Yet, the impact of this change will likely be short-lived. We expect demand to resume robustly in Q2 and grow by 260,000 b/d for the year, slightly below 2016 levels. Farther out, the country will still suffer from infrastructure constraints.

Two-hundred forty million people in India lack access to electricity. One third of the country lacks access to all-weather roads. Despite several upcoming projects allowing millions of Indians to hit the road, India is well behind its full potential. Put differently, India is unlikely to double its oil demand growth again for now.

Oil transport demand is set to quadruple to 2040

On top of currency and infrastructure concerns, other problems persist. Following the removal in subsidies and a collapse in the INR, domestic gasoline prices are now close to the June 2014 peak.

Higher oil prices will thus be testing the resilience of demand in the coming months, especially since our FX strategists expect the rupee to reach 70 by the end of 2017.

Still, India is less exposed to DM protectionism than other export-oriented EM economies and could ultimately be a beneficiary of an increased focus on South-South trade relations.

If car penetration continues to increase and road infrastructure developments take off, oil transport demand will quadruple between 2014 and 2040 and India will lead global hydrocarbon consumption growth for decades to come. – TradeArabia News Service