The consulting firm said that slowing supply growth and the Indian government’s commitment to diesel for transport will cause India’s diesel surplus to begin shrinking in 2017.

At CERAWeek by IHS Markit earlier this week, the International Energy Agency said that the world’s oil demand growth in the next five year will be led by China and India.

OPIS notes that India is an exporter of diesel to Europe, which also buys from the U.S. Gulf Coast when the arbitrage economics work. Besides diesel, India also exports gasoline and gasoline blending components. Indian alkylate cargoes are a regular fixture in the Caribbean and New York Harbor market in summer.

Tudor Pickering & Holt said on Friday that India’s February oil demand rose 1.2% year on year, the second soft month in a row to start the year.

After strong 2016 oil demand growth of more than 10% in 2016, India posted its second consecutive soft month to start the year with February 2017 demand, up only 55,000 b/d (+1.2%), TPH said. This follows up demand contraction of about 113,000 b/d (-2.7%) in January 2017, putting year-to-date 2017 at -29,000 b/d (-0.7%).

“LPG demand growth remained strong in February (+7.3%), representing the 42nd consecutive month of growth, while gasoline (+6.8% year on year) saw a nice recovery after contracting in January,” TPH said.

Offsetting this growth were reductions in diesel (-3% y/y) and fuel oil (-7% y/y) consumption, the bank said.

“We suspect the currency ban of high-denomination notes established in November 2016 remains an overhang on demand to start the year as cash transactions generally dominate the India domestic market,” TPH said.

“The YTD (year-to-date) results are headline bearish for global demand given that India was almost certainly the strongest region for demand growth in 2016,” it said.

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