India’s oil product consumption is poised to recover in May, led by increased demand by the agriculture sector, coupled with stockpiling for energy security and military purposes in the wake of tensions with Pakistan despite the ongoing truce, sources and analysts said.
Oil products, such as jet fuel, could witness healthy growth as air travel is expected to pick up sharply after the ceasefire between India and Pakistan. This would more than offset a period of slow demand in early May as citizens refrained from traveling for leisure amid uncertainty about the duration of the conflict.
“The robust seasonal demand from agriculture is leading to higher tractor sales, while construction and manufacturing activities continue to expand. Additionally, military movements amid tensions between India and Pakistan are contributing to this growth. We anticipate some stock building, given the challenging circumstances for energy security,” said Himi Srivastava, principal research analyst for Asian oil markets at S&P Global Commodity Insights.
According to Commodity Insights, India’s demand for refined products in May is projected to rise 3%, or 150,000 b/d year-over-year, to 5.6 million b/d. This growth would be primarily driven by diesel consumption, which is expected to rise by over 100,000 b/d compared to the previous year. Gasoline would be another significant contributor to the growth, with an expected increase of 64,000 b/d in May.
“Although the travel industry faced challenges in the first half of May due to tensions between India and Pakistan, especially affecting travel in northern India, scheduled flight data suggests a strong recovery in the second half of May,” Srivastava added.
Conversely, demand for fuel oil and other products is expected to remain under pressure. The shift of industries toward using gas and other alternative fuels for cleaner energy has reduced the growth of fuel oil and heavy products. However, demand from the bunkering industry remains steady, according to analysts and sources.
April demand subdued
India’s oil product demand eased from a 10-month high in March, falling 3.7% to 20.13 million mt (5.3 million b/d) in April. Oil products demand fell 0.2% year over year amid a slowdown in infrastructure activity.
In April, demand for transportation fuels, such as diesel and gasoline, rose 4.4% and 5%, respectively, year over year. In January-April, India’s demand for oil products fell 1.4% year over year to 80.63 million mt (5.3 billion b/d).
Refining sources said oil product consumption growth over the next few months could remain somewhat subdued as citizens would keep a close eye on the India-Pakistan situation despite the ceasefire.
“It is too early to predict any implications of the war-like situation on India’s oil demand and refinery runs for the short term,” said a former chief of a state-owned fuel retailer.
The ongoing tensions could cut citizens’ leisure trips for some time despite school holidays, which might impact gasoline, diesel and jet fuel demand, which otherwise should have been higher in this period, the industry expert said.
India and Pakistan agreed to an immediate ceasefire May 10, following four days of military strikes that had frazzled energy, shipping, and agriculture markets and disrupted port operations.
According to Kang Wu, global head of macro and oil demand research at Commodity Insights, ceasefire developments over the weekend would help calm commodity, energy, and freight markets and reduce the fear of potential trade flow disruptions.
Refinery runs to remain high
“I don’t see any major negative impact on refinery runs in May despite the conflict. In fact, I would assume that all refiners kept their runs high in anticipation that there would be panic-buying and hoarding during the conflict. There was no disruption to activity at refiners closer to the border,” said a senior Indian oil industry official.
Nearly 45% of India’s total annual refining capacity of 257 million mt is in the border states of Gujarat, Punjab, and Rajasthan, according to data from Commodity Insights.
Some key ones include Reliance Industries Ltd.’s refinery units at Jamnagar in Gujarat, Nayara Energy’s Vadinar refinery in Gujarat and HPCL Mittal Ltd.’s Bathinda refinery in Punjab. In addition, Cairn Oil and Gas, a unit of Vedanta Ltd., also has its Barmer oil fields in Rajasthan.
Most of those refiners operated normally during the conflict, according to sources.
India’s state-run fuel retailers, like IOC and BPCL, issued statements last week saying there was no dearth of fuel supplies in the domestic markets and no need for panic reaction, anticipating supply shortages at retail pumps.
Indian refineries processed 23.94 million mt (5.6 million b/d) in March, compared with 23.37 million mt a year ago, oil ministry officials said, reflecting a 2.4 year-over-year increase. The combined run rates of all the refineries in India, state-owned and private, stood at 110% in March, compared with 109% a year ago.
Source: Platts