India’s oil demand is likely to recover in February as Covid-related restrictions ease, said a report by Platts Analytics. In January, oil product demand was 2.1%, or 100,000 barrels per day (bpd), lower on a year-on-year basis. The demand was dampened by the re-imposition of Covid-related restrictions.

The report said that the daily infection rate in major cities have dropped sharply of late and states have been gradually removing restrictions. Citing Oxford’s stringency index, which measures government responses to the Covid-19 outbreak, the report said that the restrictions have eased since February 1, which should be boost mobility and thereby demand for transportation fuels.

“After a dent in domestic fuel demand in January, we expect the recovery to be quite swift in February, which can be seen from the toll transaction data released by the RBI,” it said.

It added that the ‘Apple mobility average’ for early February rose 20% from the January level, while domestic flights are showing signs of a turnaround. Further, starting midnight of February 14, all international passengers arriving in India only need to self-monitor themselves for 14 days without the requirement of home quarantine and the pre-arrival RT-PCR tests have been waived on presentation of a valid vaccination certificate.

“We expect a rebound of India’s oil demand in February, up on month by 260,000 b/d (barrels per day),” it said.

The report also observed that with state elections underway, domestic market companies have not been able to pass on high oil prices despite rising global crude prices, as retail fuel prices are a politically sensitive topic.

“We may expect a rise in retail prices in line with the high international prices once the polls are over, which may further fuel the already high inflation and have the potential to slow the already fragile demand recovery. In addition to the strategic petroleum reserves (SPR) release to state-owned refiners last year, in conjunction with other major economies led by the US to cool international oil prices, India also cut fuel taxes to ease the impact of high prices on consumers,” it said.

India depends heavily on crude imports, and it has relatively low strategic petroleum reserves compared to other major Asian consuming countries such as China, Japan and South Korea. India’s relatively high inflation means that it has less leeway to boost its economy, though growth is expected to be strong at 8% for 2022, it said.
Source: Livemint