In­dia slams UN re­port on Kashmir

The two coun­tries have so far this year ac­counted for about 69 per cent of the ex­pected growth in crude oil de­mand

Financial Chronicle - - FRONT PAGE - FC BUREAU New Delhi

THE UN on Thursday re­leased the first-ever re­port on al­leged hu­man rights vi­o­la­tion in Kashmir and Pak­istan-oc­cu­pied Kashmir (PoK) and de­manded an in­ter­na­tional probe into it, evok­ing a sharp re­ac­tion from In­dia which termed the doc­u­ment as “fal­la­cious and mo­ti­vated.” Pak­istan said that the ref­er­ence to PoK in a UN re­port on al­leged rights vi­o­la­tions should in no way be con­strued to cre­ate a “false sense of equiv­a­lence” with rights vi­o­la­tions in Kashmir. The re­port fo­cused on both J&K and Pak­istanAd­min­is­tered Kashmir.

DIS­CUS­SION in the crude oil mar­ket is de­gen­er­at­ing into a sin­gle “will they or won’t they” fo­cus on whether the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries (Opec) will ease out­put re­stric­tions next week.

While the meet­ing in Vi­enna on June 22 will un­doubt­edly heav­ily in­flu­ence the di­rec­tion of short-term crude prices, the mar­ket’s fo­cus solely on sup­ply could be viewed as some­what my­opic.

De­mand is prob­a­bly the more im­por­tant driver of the oil price over the longer term, and the sim­ple truth is that the global mar­ket is ef­fec­tively now hostage to just two coun­tries.

China and In­dia have so far this year ac­counted for about 69 per cent of the ex­pected growth in crude oil de­mand, mean­ing that what hap­pens in those two be­he­moths is likely of far more im­por­tance to the crude mar­ket than what may or may not hap­pen in Vi­enna.

The In­ter­na­tional En­ergy Agency fore­cast last month that global crude oil de­mand would rise by 1.4 mil­lion bar­rels per day (bpd) in 2018, down from an ear­lier es­ti­mate of 1.5 mil­lion bpd.

For the first five months of the year China’s crude oil im­ports were 9.21 mil­lion bpd, ac­cord­ing to cus­toms data, a rise of 690,000 bpd on the same pe­riod in 2017.

In­dia’s crude im­ports were 4.57 mil­lion bpd in the Jan­uary-May pe­riod, up 272,000 bpd from the same pe­riod last year, ac­cord­ing to ves­sel and port data and in­dus­try sources.

To­gether these two coun­tries, the world’s big­gest and third-largest crude im­porters, have brought in 962,000 bpd more in the first five months of 2018 than in same pe­riod last year.

If this pace of growth was main­tained for the whole year, it would mean that China and In­dia would ac­count for the lion’s share of the IEA’s fore­cast for the in­crease in global de­mand. Most in­vestors or firms would tell you that hav­ing more than two-thirds of your ex­pected growth ex­posed to just two play­ers is ex­tremely risky, yet the oil mar­ket seems al­most blasé about the out­look for both these coun­tries. While the ma­jor­ity of eco­nomic fore­casts are for strong out­comes in both China and In­dia, they aren’t with­out risks, and those risks may be ris­ing.

For China there is the peren­nial threat of credit prob­lems, with sev­eral parts of the econ­omy still highly lever­aged and strug­gling to ser­vice loans. There is also the ris­ing risk of an es­ca­la­tion of trade ten­sions and a tar­iff war with the ad­min­is­tra­tion of US pres­i­dent Don­ald Trump.

And then there is the gov­ern­ment’s pol­icy of re­duc­ing air pol­lu­tion, which is re­sult­ing in a shift to elec­tric cars and trucks pow­ered by liq­ue­fied nat­u­ral gas (LNG).

For In­dia the great­est risk to its eco­nomic out­look is high en­ergy prices, given its re­liance on im­ported crude and nat­u­ral gas, and to some ex­tent im­ported coal.

The price of a litre of diesel in New Delhi was Rs 67.85 ($1) on Wednesday, which is up 27 per cent from this time a year ago.

The price of Brent crude has risen by about 71 per cent in the past year, mean­ing In­dian con­sumers have been spared the worst of the in­crease, but there have to be ques­tion marks over how long the gov­ern­ment can lean on the state-owned re­fin­ers to ab­sorb cost in­crease.

Over­all, there is no im­me­di­ate rea­son to ex­pect lower crude oil de­mand growth in China and In­dia, but the risks are mainly an­gled to­ward an eas­ing rather than an ac­cel­er­a­tion.

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