 "India's fuel consumption to be higher in 18 months, says Moody's")
"We expect the Indian economy to grow at a faster pace, with GDP growth for the fiscal year ending March 2016 at 7 per cent and 7.5 per cent for the following year," it said in a report titled 'Refining and Marketing - Asia Outlook Stable on Modest EBITDA Growth, Easing Supply Overhang'.
Improving economic growth along with low oil prices will support higher consumption of refined petroleum products in India over the next 18 months, it said.
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Refined products demand grew 6.7 per cent year-over-year in April to August 2015, significantly better than the 2 per cent growth rate achieved in the fiscal year ended March 2015.
"Lower crude prices will reduce refiners' feedstock costs and minimise working capital requirements, which together with healthy earnings, will boost cash flows and allow refiners to reduce borrowings," Moody's said.
Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) have reduced their debt levels over the past 12 months.
"The economic slowdown in China, industry cyclicality and capacity overhang continue to pressure Asian refiners, despite our stable outlook. We could change our outlook to negative if net refining capacity additions in Asia materially outpace growth in demand, such that our projected EBITDA for the industry declines by more than 10 per cent; or if demand from China and India contracts," it said.
Moody's said it would consider a positive outlook if regional demand overwhelms capacity additions such that refining margins exceed USD 8 per barrel on a sustained basis; or if Iranian sanctions are lifted such that low Brent crude prices in the USD 50 per barrel range become the new norm, leading to raise EBITDA growth forecast above 10 per cent.
While a negative industry outlook indicates Moody's view that fundamental business conditions will worsen, a positive outlook indicates that it expects fundamental business conditions to improve.
A stable industry outlook indicates that conditions are not expected to change significantly.
Moody's estimated that 300,000 barrels per day of new capacity from IOC's Paradip refinery and 112,000 bpd from expansion of Bharat Petroleum Corp Ltd's (BPCL) Kochi refinery will come online through 2016.
"We anticipate the current wave of capacity additions will reduce refiners' production costs and boost refining complexity. This capacity to produce more higher-value distillates per barrel of crude oil will also amplify supply pressure," it said.
It also expects that the region's improved supply-demand balance would encourage regional refiners to keep refinery utilisation rates stable over the next 18 months amidst increasing capacity.