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Tanker market could find additional support in the future from India’s growth




India is bound to make a splash in the shipping freight markets in the coming years, both in the dry bulk, but also in the tanker market segments. In its latest weekly report, Poten & Partners examined this exact development, highlighting in the tanker market, where LR1 and LR2s product tankers could take a hit, while other tanker segments benefit.

Poten noted that “in the most recent Medium-Term Oil Market Report, the IEA describes the Indian demand outlook as “particularly favorable”, with 1.1 million barrels per day (mb/d) of demand forecast to be added to 2021, an average annual increase of 4.2%. This is even one of the more conservative forecasts. According to other analysts, India’s development has characteristics that are similar to those of China 10-15 years ago. As a reminder, China’s oil demand experienced a compound annual growth rate of 7.75% between 2000 and 2005. If India were to start growing at those rates, this would provide a significant boost to both oil and shipping markets.

According to Poten’s report, “India has a lot of potential. Its population reached 1.29 billion in 2015 and is expected to grow by 1.2% (or 20 million people) in 2016. Based on its current growth trajectory, it is expected that India’s working age population (Aged 15-19) will surpass China by 2025 and continue to climb until 2045. China’s rapid economic growth has been built on infrastructure, investment and manufacturing, areas in which India has barely scratched the surface”, said the analyst. What’s interesting though is that the Modi-run government has already moved forward with a series of initiatives and reforms, aimed at modernizing the country and bringing it on par with other growing economies. From the results so far, the task in hand has proven to be more than the government bargained for, but nonetheless progress is already obvious in a number of areas, albeit not at the rate which was hoped for at the beginning. Still, India’s economic growth has accelerated, which in turn has led to an increase of India’s demand for oil products by 9% during 2015, which equates to a rise of 318,000 b/d, with gasoline being the most sought after with an annual rise of 16%.

In fact, as Poten noted, “demand growth could have been even higher if not for an increase in excise duty on gasoline and diesel that was instituted in the second half of 2014. Initial data for 2016 seems to indicate a continuation of India’s growth momentum. Barclay’s Research expects that India will see strong gasoline demand growth in 2016, driven by continued growth in passenger vehicle sales, expanding road networks and rising income levels. Since India has limited oil reserves (domestic oil production is less than 900,000 b/d), the country is a significant – and growing – importer of crude oil. For 2016, Indian oil demand is forecast to grow by 300,000 b/d, while an additional 80,000 b/d will be added to the Strategic Petroleum Reserves. With domestic production reducing by 40,000 b/d, this will raise overall crude oil imports to above 4 mb/d. India is now the world’s third largest importer of crude oil after the United States and China”, said Poten.

In terms of ton-mile demand, it’s worth keeping in mind that India traditionally imported the majority of its crude oil from short-haul sources in the Middle East. However, recently it has began to change course, looking to diversify its sources of supply. For instance, tanker owners are very happy that India has increased its imports from countries in West Africa, Venezuela in Latin America, while also, small volumes from Mexico have all contributed to an increased ton-mile demand for crude tankers. Meanwhile, as recent developments have shown, post-nuclear sanctions in Iran will see India increasing crude imports from Iran, however, it’s still unknown which supplier will lose market share as a result.

It’s worth noting at this point, that “India has built up a modern refining industry with world class facilities that are exporting petroleum products all over the world. In recent years, however, growing local demand as well as the liberalization and deregulation of the domestic market has made it more attractive to sell products in India. In 2015, refined product exports from India fell by 6.7% (110,000 b/d). In the coming years, Indian refined product exports are expected to fall further, as the market becomes increasingly competitive with more volumes from the Middle East and China. This could reduce demand for LR1 and LR2 product tankers”, Poten concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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