India will surpass China as the fastest-growing product market in Asia for petroleum consumption, growing at 6 per cent in 2018, a report by credit rating agency Moody’s said on Tuesday.

As economic activity in China slows down, the agency said it expected the refined product demand growth to moderate to 2.5-3 per cent in 2017-18 compared with the higher compounded annual growth rate of 5 per cent in 2012-16.

However, in absolute terms, China will still account for nearly half of demand in the region, the report pointed out.

The agency’s “Refining and Marketing - Asia”, based on the US Energy Information Administration’s data, projects demand for petroleum products in the Asia-Pacific will rise a modest 2 per cent or 0.7 million barrels per day (bpd) in 2018 to 34.6 million bpd.

China and India continue to be the key growth engines within the region, representing over 80 per cent of the sector’s expected growth in 2018, the agency said.

“Driven by China’s and India’s appetite for petroleum products and continued capacity rationalisation, we believe refining margins will remain firm, thereby supporting the earnings growth,” the report added.

Moody’s estimates that Asia’s incremental growth in demand for fuel of around 0.7 million barrels per day (bpd) will outpace net refining capacity additions of 0.4-0.5 million bpd over the next 12-18 months, with the bulk of the incremental growth in refining capacity will come from China and Vietnam.

Despite growing refining capacity in the region, demand for petroleum products is expected to outpace capacity addition, as a result Asia will remain a net importer of refined petroleum products over at least the next three years.

Diesel and gasoline, both transport fuels which typically make up about 60 per cent of the product portfolio of Asian refiners, will continue to do well on refining margins, Moody’s said, as global crude oil prices continue to stay below $60 per barrel. The average Asian refining margin is expected to stay firm over the next 12-18 months at below $8 per barrel.

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