India and China have overtaken the traditionally dominant crude buyers, such as Japan, and challenged the United States as the world’s biggest oil consumer. The new dynamics in the global oil market brings about new trade routes but also challenges the way oil is priced in the region, as new players are increasing pushing for fewer long-term deals and more cargoes. China and India, the world’s more populous countries, have tripled their share of the world’s oil consumption since 1990 to more than 16 percent, which is nearing the US share of roughly 20 percent. With the combined share of 16 percent, both economies are re-affirming their status as the epicenter of the global demand growth.
Owain Johnson of Dubai Mercantile Exchange (DME) commented that “Asian oil markets are in a tremendous period of flux”. Experts estimate that China and India could double their share to about 30 percent by 2040. Both countries are also home to Asia’s rising traders, such as the Indian Oil Corporation, which operates 11 refineries with a combined capacity of 80.7 million tons a year (1.9 million barrels per day), which is about 30 percent of India’s overall capacity. The rising power of Chinese and Indian companies naturally comes at the expense of Western energy giants. For example, Shell complained already in December last year that aggressive trading of Chinese firms caused the fact that Asian crude prices did not properly reflect the market. “Chinese oil companies have become the new power houses in oil trading,” said Oystein Berentsen of Strong Petroleum in Singapore.
Before the rise of India and China, Asia’s most powerful player in energy was Japan, which accounted for about 10 percent of the world’s demand. Now, as China and India are taking the lead, more and more trading is done on spot basis, as buyers prefer cost and delivery flexibility to fixed shipment schedule. Moreover, much of the trading comes in hefty volumes, as China and India’s combined daily net crude imports are more than 10 million barrels.