India's transport fuel demand is likely to grow this year, analysts said, but at a slower than expected pace with uncertainty persisting around the further extension of Covid-19 lockdowns and the pace of vaccinations. Coronavirus cases have surged to 27mn in India, according to government data, making it the second-most infected country after the US. This has prompted many Indian states to impose strict lockdowns and curfews to curb the spread of infections, in turn weighing on fuel consumption. The country's first-half May diesel, gasoline and jet fuel consumption slumped compared with the first half of April.
Analysts expect fuel demand to recover in this year's final quarter and reach pre-pandemic levels next year. US bank JP Morgan has cut its Indian oil demand projections by 690,000 b/d for May, with gasoline and diesel demand down by 275,000 and 370,000 b/d respectively, and by around 400,000 b/d for June, compared with its forecasts at the start of April. The bank predicts total Indian oil demand to drop to a 4.8mn b/d average in the second quarter before recovering to a 4.9mn b/d average in the third quarter and ending the year at an average of 5.3mn b/d in the final quarter, which would be 3.7pc higher than pre-pandemic levels in 2019. But there is a downside risks to these forecasts if India's Covid-19 outbreak persists longer than expected or rebounds later in the year, it warned.
Auto fuel demand in May is likely to be flat from the previous month but see some increases in June, said ratings agency Icra's vice-president and co-head of corporate ratings Prashant Vasisht. But fuel demand on a quarterly basis will see a 15-20pc dip in the April-June first quarter of 2021-22, which could reduce crude demand by 300,000-500,000 b/d, he added. Refiners are now cutting production in response to falling domestic demand. "State-owned refineries are more likely to reduce runs as India's product consumption declines, since a greater share of their products are marketed domestically," said Rystad Energy analyst Sofia Guidi Di Sante, who expects demand to average 4.4mn b/d this year and increase to 5mn b/d next year.
Rystad forecasts India's refinery runs at 4.2mn b/d in May, down by 700,000 b/d or 14pc from April, and at an average of 4.8mn b/d in 2021 that will be 340,000 b/d below the pre-pandemic levels. Indian state-controlled refiner IOC is operating its 1.34mn b/d of capacity at 75-80pc in the second half of May, while Bharat Petroleum is running its 705,000 b/d of capacity at 80-85pc this month. Hindustan Petroleum's 540,000 b/d of capacity is operating at 70pc, while MRPL is running its 300,000 b/d Mangalore refinery at 65-75pc of capacity. Demand for diesel and gasoline will rebound by 12-14pc from a year earlier in 2021-22 as mobility restrictions and lockdowns start to ease from the second quarter of the current fiscal year, said CRISIL Research director Hetal Gandhi. Gasoline "demand will be further supported by changing preference for personal mobility in wake of a Covid-led change in consumer behaviour," Gandhi added.
