High economic growth to increase fuel consumptions of India: Moody’s

Moody's Investors Services, projecting Indian economy’s growth at 7 per cent in the current fiscal and 7.5 per cent in the next one has said that improving economic growth along with low oil prices will support higher consumption of refined petroleum products in India over the next 18 months.

In its latest report titled 'Refining and Marketing - Asia Outlook Stable on Modest EBITDA Growth, Easing Supply Overhang' the agency said that “We expect the Indian economy to grow at a faster pace, with GDP growth for the fiscal year ending March 2016 at 7 per cent and 7.5 per cent for the following year.' As per the report, refined products demand grew 6.7 percent year-over-year in April to August 2015, significantly better than the 2 percent growth rate achieved in the fiscal year ended March 2015.

Moody’s added that lower crude prices will reduce refiners' feedstock costs and minimise working capital requirements, which together with healthy earnings, will boost cash flows and allow refiners to reduce borrowings.

However, the agency has cautioned that economic slowdown in China, industry cyclicality and capacity overhang continue to pressure Asian refiners, it said that despite our stable outlook we could change our outlook to negative if net refining capacity additions in Asia materially outpace growth in demand, such that our projected EBITDA for the industry declines by more than 10 percent; or if demand from China and India contracts. On the same time it said that it would consider a positive outlook if regional demand overwhelms capacity additions such that refining margins exceed $8 per barrel on a sustained basis; or if Iranian sanctions are lifted such that low Brent crude prices in the $50 per barrel range become the new norm, leading to raise EBITDA growth forecast above 10 percent.