SINGAPORE (Reuters) – Asian consumption of gasoline and other fuels has beaten expectations due to demand stemming from structural changes in the economies of Asia’s biggest oil users, vindicating for now OPEC’s decision six months ago to keep its taps open.

Saudi Arabia’s oil minister in November persuaded fellow OPEC members to refrain from cutting their crude production quotas, arguing that demand would ultimately pick up and prices recover. The strength of recent demand for oil has surprised everyone, including OPEC, researchers at independent research consultant Energy Aspects said this week.

The Organization of the Petroleum Exporting Countries is meeting in Vienna on Friday in its first gathering since last year. The 12-member cartel is widely expected to maintain its quotas, with Brent crude up 40 percent since January. Some observers say OPEC’s policy hangs in the balance, and would be untenable if a strong crude rally wipes out refining profits or if Asian economies slow further by the year-end.

For now, traders say that is unlikely as fuel demand from China and India is bullish. While China’s overall economy has slowed, the country’s coastal and interior provinces are still expanding due to state and private-sector investment. India, Asia’s third-biggest economy after China and Japan, has embarked on an industrialisation drive under its reformist Prime Minister Narendra Modi, propping up fuel consumption.

“Preliminary estimates for April Chinese apparent demand indicate growth was 7.5 percent, comparable to first-quarter 2015 levels,” JP Morgan said in a report. “Similarly, Indian demand growth for April is reported at near 9 percent, ahead of our forecasts and the first-quarter 2015 growth rate of 4 percent.”

JP Morgan said gasoline and jet fuel will continue to underpin the above-trend expansion in oil demand.

Even in debt-shaken Europe, fuel consumption growth is near 30-year highs. Goldman Sachs said demand increased 7.2 percent in the first quarter from a year earlier, and expects growth of 3.5 percent for the rest of 2015.

Global gasoline demand is expected to rise about 500,000 barrels per day (bpd) in 2015, equivalent to 2 percent of global demand, and 400,000 bpd in 2016, according to JP Morgan.

High fuel consumption is helping to contain a global glut in crude that has left millions of barrels stored on tankers without a buyer.

TWO MILLION NEW CARS A MONTH

Many countries in the region are experiencing their slowest economic growth in years, with China’s gross domestic product expanding at its slowest rate in a generation.

But growth will be in the region of 6-7 percent this year, with some of China’s interior provinces still booming. That means many people will still be buying their first car. Others will be upgrading to a bigger, more fuel-intensive vehicle.

Data from the China Association of Automobile Manufacturers shows automobile sales between January and April outstripped 2014 levels in three out of four months, averaging almost 2 million new cars a month.

In India, April diesel use – which accounts for over 40 percent of refined fuel as half of the country’s cars run on diesel – rose 9.3 percent. That’s the fastest pace since August 2012. Gasoline consumption surged 18.7 percent, the most since May 2013.

“India will be a major market, it is a growth story,” said B. Ashok, chairman of Indian Oil Corp , the country’s biggest fuel retailer. “The government is giving an emphasis on manufacturing activity and infrastructure development. Both these mean that there is going to be greater demand for fuels.”

Gasoline demand from Indonesia, one of the world’s biggest importers of refined products, is also strong, with an expected increase of 38 percent to 6.6 million barrels in the third quarter from a year earlier.

Gasoline use in the United States is also high as drivers take advantage of cheaper fuel. The final closure of a large Australian refinery this week also means the country needs to import more fuel from Asia.

Oil traders also cited firm demand from mature markets like Japan and South Korea.

The boom shows up in traded oil markets. In Singapore, Asia’s main fuel trading hub, a record number of gasoline cargoes are being traded.

Margins for gasoline reached a record $17.64 (12 pounds) a barrel above Brent crude in May . Refiners have benefited from the fall in crude prices between June 2014 and January 2015.

Traders warned though of the risk of a price correction as fuel demand could drop if higher crude prices erode refinery margins.

“If the gasoline crack collapses, then physical long guys are going to get hosed,” said a fuel trader, referring to the price difference between crude and gasoline.

Short-term demand drivers like China’s purchases of strategic oil reserves will also wane.

“China’s storage needs are ultimately finite, and unlikely to last in the same scale much beyond 2016,” Energy Aspects said in a recent report.

Extracted in full from Yahoo.