India’s COVID-19 crisis to inflict wound on oil demand, but not a deep one: FIPI chief
India’s unprecedented COVID-19 crisis is set to take a toll on oil demand in the April-June quarter as refiners look to scale back throughput and crude imports on the back of weakening transport demand and disruption to industrial activity, the head of the Federation of Indian Petroleum Industry told S&P Global Platts.
The country, which has witnessed more than 300,000 new coronavirus cases per day for nearly two weeks, has a challenging task at hand, and the outlook for oil consumption could worsen over the next few weeks before rebounding in the following quarters, said R.K. Malhotra, FIPI’s director general.
“Looking at the situation now, it could take a couple of months to stabilize,” Malhotra said. “This quarter will be not so good for oil as regional lockdowns have restricted many activities. And there is more to come,” Malhotra told Platts in an interview.
Indian Prime Minister Narendra Modi has urged leaders of the various states to focus on micro containment zones and use lockdowns only as a last resort. But many provinces are planning to implement regional lockdowns amid fears the situation could get worse.
“It’s hard to say when the infections for the country as a whole will peak, although in some cities it might have already peaked. Companies and organizations are focused on battling the pandemic. That’s the big priority now. This will disrupt industrial activity in some pockets,” Malhotra said.
Further demand drop possible
S&P Global Platts Analytics has said that India would witness a year-on-year oil demand growth of 400,000 b/d in 2021, revised down from an earlier growth estimate of 440,000 b/d, as the country grapples with record COVID-19 cases.
Chris Midgley, global head of analytics at Platts, said last week that those numbers could possibly be revised down by another 20,000 b/d, but any further revision would depend on how the situation develops over the next few weeks.
But Midgley added that India would continue to reap the benefits of a robust world economy as industrial activity picks up across the globe. Oil demand could slow in the near term but there were enough conditions to believe that consumption would stage a robust recovery in the second half of 2021.
FIPI’s Malhotra said that demand for gasoline is bound to take a big hit in the current quarter as residents prefer to stay at home in their efforts to keep the virus at bay. In addition, industrial activity would also suffer to some extent as companies and organizations divert resources and manpower to battle the pandemic.
“This will have an impact on crude runs and imports. Refiners will be cautious and gauge the demand outlook carefully before planning their output. While gasoline, gasoil and jet fuel demand will be under downward pressure, LPG should continue to do well due to increased demand for cooking fuel,” he said.
India’s run rates have remained robust until the end of the first quarter. The average run for all categories of refineries in India rose to 99% in March compared with 97% in February, the latest survey of the oil ministry showed. In March, state-run refineries recorded a 106% run rate compared with 102% a year ago and 107% in February.
Indian Oil Corp. recorded an average 100% run rate for all its nine standalone refineries in March, compared with 98% in the year-ago month and 101% in February. But IOC had cut its run rates to around 90% in April, according to company officials.
India’s Mangalore Refinery and Petrochemicals Ltd. had also cut its run rates to adjust to the decline in retail fuel demand, company officials said.
“If you look at refiners, some of them are focusing on helping out for things like providing medical grade oxygen to hospitals to fight the pandemic,” Malhotra said. “As some of the products like oxygen get diverted away from industrial use, some industries will face supply issues,” Malhotra said.
Traditionally, Reliance is not a manufacturer of medical grade liquid oxygen. But, starting from zero before the pandemic, Reliance now produces over 1,000 mt of medical grade liquid oxygen per day — or over 11% of India’s total production — from its refinery-cum-petrochemical complex in Jamnagar and other facilities.
In addition, IOC has diverted high-purity oxygen used in its monoethylene glycol (MEG) unit to produce medical-grade liquid oxygen at its Panipat refinery and petrochemical complex. The throughput of the unit has also been scaled down for a more critical cause, the refiner said.
“It’s a combination of factors that will keep run rates subdued this quarter,” Malhotra said. “There is no doubt that this quarter would be bad for petroleum products, but we should see improvement in the subsequent quarters and overall in the second half of the year.”
Oil demand in India declined 470,000 b/d in 2020 when the first wave of the pandemic pulled down the country’s oil products consumption to the lowest level in nearly two decades.