Every week brings another series of headlines about heavy blows that will soon fall in the energy sector …
“The Oil Collapse ‘Spiral Death” is coming soon …
And … “Oil prices will never recover.”
Obviously, we will all leave gas cars and trucks very soon because of Tesla’s cooks. A slow-growing America and an increasing number of wind and solar installations around the world are reportedly going to get the job done.
Boom! Oil is “new coal”.
Don’t believe it. In fact, we may be entering a new golden era for oil investment – all because of a certain five-letter country in Asia …
If you want to know which economy will have the biggest impact on the global price of oil – and why we will continue to view the oil sector as an important part of any investment strategy – all you need to do is look at what is happening in India.
India – with a population of 1.3 billion and a growing trend in gross domestic product (GDP) that is now growing faster than China (7.5% vs. 6.9% in 2015) – is still in the early stages of a mass love affair with raw raw material. And since about 80% of what you spend needs to be introduced, it’s a love affair that grows literally from month to month.
In September, oil imports rose by almost 12% compared to a year ago. The same was true in August (9% growth) when the country imported a record nearly 19 million metric tons of crude oil – the equivalent of almost 4.5 million barrels per day. By comparison, China, with a more developed economy and nearly 1.4 billion people, imports about 6 million barrels a day.
As the International Energy Agency (IEA) recently noted, “India is taking over China as a major market for oil growth.”
At the current pace, the country is on track to increase annual imports by 7% for the second time in a row, doubling crude oil imports in ten years.
What drives all the demand?
The story is well known – a small but growing middle class (which now makes up about a fifth of India’s population, demographers say, but is expected to grow to more than 40% by 2030).
And new cars. Lots of new cars.
In 2015, passenger car sales grew by almost 10% to more than 2 million units, the fastest pace in five years. One of India’s largest carmakers, Maruti Suzuki, recently predicted annual sales would reach 5 million a year by the end of this decade.
Keep in mind, all of this is happening in the background in which the IEA, in its World Energy Investment 2016 report, said that current oil wells around the world are consumed by an average of about 9% per year. Discoveries of new oil reserves are “falling to a level not seen in the last 60 years”.
Of course, it is important to ask whether the sale of electric vehicles can become a major factor and perhaps drive away the growing demand for oil in India.
I’m sure the answer is yes. But when anyone guesses. As in India Economic Times it is noted that the country has 400 million people who do not have access to reliable electricity. And even in larger cities, outages have been frequent due to a lack of investment in India’s electricity grid in previous decades. Without reliable power, even the fastest-charged electric car or long-range motorcycle is useless.
The situation is starting to change in India, but it will take decades. Meanwhile, oil remains the only practical game in the city for investors and as the foundation of the rapidly developing Indian economy.