The global ratings agency, Moody’s Investors Service in its latest report has said that India will overtake China as the fastest-growing Asian market for petroleum products by the year 2018, on the back of a 6 percent demand growth in the sector. As economic activity in China slows down, the report expected that China’s refined product demand growth will moderate to 2.5-3 percent in FY18, which is nearly half of compounded annual growth rate of 5 percent in 2012-16. It pointed out that in absolute terms, China will still account for 48 percent of Asia's R&M sector's demand growth in 2018.
Despite the weakening growth numbers in China and India, the ratings agency believed that both the countries will continue to be the key growth engines for the sector in Asia, representing over 80 percent of the expected growth in 2018. Citing the American energy information administration projections, it said that the demand for petroleum products in the Asia Pacific will rise a modest 2 percent or 0.7 million barrels per day in to 34.6 million bpd in 2018.
Given the oil sector's reliance on China and increasingly India, the report further mentioned that demand would face considerable risks if economic growth weakens materially below their expectations. Driven by China’s and India’s appetite for petroleum products and continued capacity rationalisation, the report said that refining margins will remain firm, thereby supporting the earnings growth. It also expected the average Asian refining margins to be largely in line with the average of $6.2 per barrel for the last three years, but better than $5.1 per barrel in 2016.