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The return of the big oil companies

Each week brings another series of headlines about the heavy blows that will soon rain down on the energy sector …

“The Oil Collapse ‘Death Spiral'” is coming soon …

And … “Oil prices may never pick up.”

Apparently, very soon, we will all abandon our gasoline cars and trucks for knockoffs of Tesla. The slow growth of the American economy and the increasing number of wind and solar power installations around the world will supposedly finish the job.

Boom! Oil is “the new coal.”

Do not believe it. In fact, we may be entering a new golden age for oil investment, all due to a certain country in Asia with a five-letter name …

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 have to do is watch what is happening. In India.

India, with a population of 1.3 billion and a gross domestic product (GDP) growth trend that is now increasing at a faster rate than China (7.5% compared to 6.9% in 2015), is still in the early stages of a massive love affair with crude oil. . And considering that you need to import around 80% of what you consume, it is a love story that literally grows month by month.

In September, oil imports increased by almost 12% compared to the levels of the previous year. The same happened in August (an increase of 9%) when the country brought in a record of almost 19 million metric tons of crude, 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 replacing China as the main growth market for oil.”

At the current rate, the country is on track to increase annual imports by 7% for the second time in a row, having doubled its crude oil imports in a decade.

What drives all the demand?

It’s a family story: a small but growing middle class (making up about a fifth of India’s population now, demographers say, but expected to rise to more than 40% by 2030).

And new cars. Many, many new cars.

In 2015, passenger car sales rose nearly 10% to more than 2 million units, the fastest pace in five years. One of India’s largest automakers, Maruti Suzuki, recently forecast that annual sales would reach 5 million a year by the end of this decade.

Note that all of this is happening in a context where the IEA, in its World Energy Investment 2016 report, said that current oil wells around the world are depleting at an average of around 9% a year. Discoveries of new oil reserves are “falling to levels not seen in the last 60 years.”

Of course, it is important to ask whether EV sales could become a bigger factor and perhaps reduce India’s growing demand for oil.

The answer, I am sure, is yes. But when nobody knows. Like india Economic times He noted, the country has 400 million people without access to reliable electricity. And even in major cities, outages have been common due to underinvestment in India’s power grid in previous decades. Without reliable power, even the longest-range, fastest-charging electric car or motorcycle is useless.

The situation is beginning to change in India, but it will take decades. Meanwhile, oil remains the only practical game in town for investors and as a foundation for India’s rapidly developing economy.

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