China, India will continue to provide growth opportunities for oil, says Vitol

Asia’s appetite for fossil fuels will remain healthy in the near to medium term, with demand for transportation fuels in China showing strong signs of revival after the pandemic while rapid industrialization is opening up growth opportunities in India, Mike Muller, head of Vitol Asia, said Nov. 15.

Muller told the FT Commodities Asia Summit that China’s demand growth revival for some oil products had surpassed expectations.

“China is much talked about because we have some serious concerns coming from the construction sector, which has now been a one-and-a-half-year to two-year phenomenon,” Muller told the conference.

“China experienced its peak demand destruction during COVID-19, and when they opened up, the year-on-year statistics looked formidable. But putting it in the context of pre-2019 levels, China is still a market that is growing. Real-time demand for gasoline and jet fuel has exceeded expectations.”

The International Energy Agency on Nov. 14 raised its estimates for oil demand and supply growth in 2023 by 100,000 b/d and 200,000 b/d respectively, citing Chinese demand on the one hand and “outperforming” production in the US and Brazil on the other.

In its monthly oil market report, the IEA said China’s oil demand had reached an all-time high above 17 million b/d in September as the country’s petrochemical sector boomed, offsetting declining petrochemicals production in OECD economies of the Asia-Pacific.

The Chinese resurgence has contributed to a tight second half of the year, with demand seen outstripping supply in the third and fourth quarters, partly reflecting ongoing OPEC+ output cuts, the IEA said.

Muller said that despite China having the highest penetration of electric vehicle sales in the world, total fleet of internal combustion engine vehicles on the road was still going up, signaling a healthy oil demand outlook.

‘Mind-blowing’ development

Highlighting the other source of growth in Asia, Muller added that India would also provide strong growth opportunities for fossil fuels in the foreseeable future.

“India has caught up with China in terms of population. The industrialization and urbanization that is yet to come in India is going to be mind-blowing,” Muller said.

“After China, India will be one of the countries which will provide demand growth opportunities for all forms of fossil fuels. India’s economy today is more resilient compared to a while ago. It is certainly on a growth trajectory and it’s worth watching,” he added.

Last month, the US Department of the Treasury eased oil, trade and financial sanctions on Venezuela for a six-month period, which could be renewed if the Maduro government follows through on its political and electoral commitments.

This means that US oil companies will be allowed to begin to explore and advance investments in Venezuela. Of more immediate relevance is that US oil refiners will now be able to buy oil directly from state-run oil company PDVSA, which could lead to less Venezuelan crude coming to Asia.

“Now that Venezuela is no longer sanctioned, yes, of course, we were going to try to do business. But I imagine there’s a long queue ahead of us with people that are owed substantial amounts of money by the Venezuelans,” Muller said on the sidelines of the conference.

“Market logic would dictate that most Venezuelan oil should flow short-haul to America, especially if freight rates are high. So that would mean Asia is probably not impacted very much by those flows, if indeed market forces play out freely. But markets are not that simple,” he added.

Petchems to lead future growth

Giovanni Serio, global head of research at Vitol, told the summit that global oil markets would remain more or less balanced in 2024, with the possibility of some surplus next year.

“We and most people expect a fairly balanced, or even a surplus in the oil market next year,” he said, adding that global demand for oil had surpassed pre-pandemic levels.

Serio said that in the future the petrochemicals sector and LPG would lead oil products demand growth, and the gap between demand growth and output is likely to eat into OPEC’s spare capacity post-2030. That may be one of the reasons why Saudi Arabia is willing to cut output currently, instead of maximizing revenues.

“If you break it down by products — the non-transportation part of the barrel — the petrochemicals sector is the one that will lead growth until 2035. We are seeing consistent investments in the petrochemicals sector, and this will drive demand and offset partly the decline in demand for transport fuels, such as gasoline and gasoil,” Serio said.
Source: Platts