Ellen R. Wald, Ph.D. | Feb 11, 2021 18:36
When analyzing oil fundamentals, traders must assess demand from a regional perspective. In the last few years we have seen regular talk that India will not be a major player in the future of demand because of some as-yet not clarified clean energy plans. Do not listen to this.
Today, India is a major consumer of oil and oil products, and it will only be a more significant consumer in the years to come. Despite media attention focused on clean energy growth, traders have every reason to believe that India’s oil demand will grow significantly more than any other country’s oil demand in the decade. Therefore, every trader needs to watch India and its demand.
There has been and will continue to be much chatter about India’s transition to clean power. A recent Bloomberg article covering the release of an IEA report on India’s energy outlook was headlined, “India needs to spend $1.4 trillion more on clean energy shift.” That $1.4 trillion might be split over 20 years, but it still comes out to $70 billion per year. This is an unreasonable figure, and it adds up to 70% more than India’s current policy desires. Such plans and aims are wholly unrealistic.
In 2019, India was the third-largest consumer of oil and petroleum products, after the United States and China. Demand that year reached 4.9 million bpd, but many believe it would have been even higher had an economic slowdown and heavy monsoon season not hampered demand growth.
It's difficult to make predictions for the post-coronavirus economic future, but even the IEA agrees that India is a “key driver” for oil demand growth. The IEA predicts that India’s oil demand will grow to 6 million bpd by 2024. In short, India’s oil demand is not going away.
Instead of believing unrealistic clean energy investment targets, traders should focus on the following points when it comes to understanding how India’s demand growth will impact oil market fundamentals:
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