- India is one of the fastest-growing oil markets in Asia in recent years.
- India’s oil demand took a bigger hit in the first half due to countrywide lockdown.
- India’s oil demand is expected to be down 115,000 b/d in H2.
- The whole year’s demand will be down by 405,000 b/d, year on year.
- India’s refinery runs in the second half of the year are expected to be 260,000 b/d lower.
- India’s exports of refined oil products fell 5.9%, year on year, to 4.4 million mt.
According to an article published in Platts, hopes that India’s oil demand will recover in the second half of the year is fading fast as some provinces implement partial lockdowns to battle the COVID-19 pandemic, prompting refiners to start planning for lower crude runs in order to prevent a problem of plenty at home.
India – fastest growing oil markets in Asia
India, one of the fastest-growing oil markets in Asia in recent years, is expected to end 2020 with its oil demand slipping into the red, a trend not seen for nearly two decades, as per government officials and oil analysts.
The last time India witnessed negative growth in oil demand was in 2001 when consumption had fallen marginally from 2000 levels.
India’s oil demand took a bigger hit in the first half of this year when it implemented along with countrywide lockdown.
Negative growth in oil demand
According to S&P Global Platts Analytics, India’s oil demand is expected to be down 115,000 b/d, year on year in H2, and whole year demand will be down by 405,000 b/d, year on year.
“The challenge is that Indian refiners have annual government targets to meet on crude runs at a time when domestic demand is faltering and export margins are weak,“ said Amrita Sen, chief oil analyst at Energy Aspects. “They may not have any other option, but cut runs.“
The slow and painful recovery
Petroleum ministry officials said Aug. 5 that India’s oil demand is expected to remain subdued and is unlikely to reach levels seen before the COVID-19 lockdown at least until the end of the current fiscal in March 2021. The expectation is based on the latest re-imposition of lockdown by many states to combat the community spread of the coronavirus.
“India’s refinery runs in the second half of the year are expected to be 260,000 b/d lower, year on year, as refiners hold back from raising throughput,“ said Lim Jit Yang, advisor for oil markets at Platts Analytics.
Total capacity utilization across all refineries in India had risen to 85% in June, from 77% in May, as retail fuel demand had started showing signs of revival with the easing of the lockdowns. But the trend is getting reversed again.
Indian Oil Corp., the country’s largest state-run refiner, has reduced run rate to 75% from as high as 93% during the first week of July, according to company officials.
According to Shrikant Madhav Vaidya, IOC’s chairman, the company’s run rate is expected to average 70%-75% in 2020. “We won’t get back to normal times in the near future.“
India has about 5.2 million b/d processing capacity, with state refiners accounting for close to 65% of the total capacity, while the rest is shared by private refiners, such as Reliance Industries and Nayara Energy.
Uncertain outlook
“The whole oil industry, including Hindustan Petroleum Corporation Ltd, witnessed a general fall in demand for petroleum products in the aftermath of the COVID-19 pandemic,“ HPCL said in a regulatory filing.
According to Facts Global Energy, India’s demand for key oil products will be down 12%, year on year in 2020, but is expected to rebound 15% in 2021 because of a lower base number this year. High pump prices will be counter-productive in resuscitating India’s oil demand. As a result, refiners will need to cut back on crude throughput for a prolonged period, it added.
Oil ministry officials said it would be difficult to predict the timeline for a recovery of oil demand as COVID-19 infection rates have been increasing in India and globally.
“The rebound in oil products demand could take six to nine months,“ S.K. Gupta, IOC’s finance director, told investors.
Fall in refined oil exports
India’s exports of refined oil products fell 5.9%, year on year, to 4.4 million mt, or 1.15 million b/d in June, data from the Petroleum Planning and Analysis Cell showed.
Analysts said refined product exports registered a lower growth primarily due to a decline in overseas sales of diesel.
But in the cumulative January-June period, oil product exports rose 10.7% to 31.8 million mt, or 1.37 million b/d, as domestic fuel demand remained weak.
According to Lim of Platts Analytics, India’s net exports of key oil products, such as gasoline, kerosene and jet fuel, as well as diesel — were up by 73,000 b/d, year on year, during H1 2020, but are expected to decline by some 98,000 b/d, year on year, in H2, as incremental refinery runs are outpaced marginally by modest demand recovery from H1 levels.
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Source: Platts
