India’s gasoil demand recovery proves belated, but robust
Gasoil demand in India is starting to see signs of a strong revival on the back of robust industrial growth and rising commercial mobility, and is expected to move into top gear when the distribution of COVID-19 vaccines gathers speed later in the year, industry sources and analysts said.
There is growing consensus that India could see GDP growth as high as 9% in 2021 as New Delhi steps up efforts to bring the economy out of the painful period witnessed in 2020 due to the pandemic. And some of the initial indicators — such as vehicle sale numbers and industrial output data — are prompting analysts to believe those forecasts.
S&P Global Platts Analytics expects India’s diesel demand, which is estimated to have dropped 14% year on year in 2020 to 1.5 million b/d, to bounce back 15% year on year in 2021.
“Going by the current situation, where we are seeing a flat COVID-19 curve as well as decent economic indicators in India; this should bode well for commercial transport and overall energy consumption,” said Dharmakirti Joshi, chief economist at CRISIL, a unit of S&P Global.
“I think energy-intensive parts of the economy, like industry, will fare better than services, meaning overall oil, and products such as diesel, should gain ground,” he added.
Platts Analytics expects India’s GDP to grow by 9.3% in 2021, after contracting 7.8% in 2020, as its domestic coronavirus situation continues to improve and vaccines become available.
“Diesel demand will rebound sharply but India’s jet fuel demand, however, will only improve slowly as airlines in the country are likely to continue to function well below capacity, especially for international flights, which are currently 60% lower compared to pre-COVID levels,” said Lim Jit Yang, adviser for oil markets at Platts Analytics.
STRUCTURAL REVIVAL SEEN
Overall, Platts Analytics expects India’s oil demand in 2021 to recover back to slightly above the level of 2019, with growth of 465,000 b/d in the year, after declining by 455,000 b/d in 2020.
Nomura said in a research note in December that despite structural balance sheet issues and growth hiccups in the first half of the year, it expects easier financial conditions, a synchronized global recovery and vaccinations to support an above-consensus GDP growth outturn of 9.9% in India in 2021.
Robust signs of diesel demand revival are already visible, with latest data from the Petroleum Planning and Analysis Cell showing gasoil consumption rising more than 5% on the month to 7.04 million mt in November from 6.70 million mt in October. Gasoil demand rose for the first time in October after falling for seven consecutive months.
“With the vaccine rollout, the recovery will be firm and sustainable. Jet fuel demand will improve with the lifting of airline capacity and higher volumes. Diesel demand will also improve with higher demand from railway freight movements and as offices reopen,” said Sumit Pokharna, vice president at Kotak Securities.
New Delhi in November unveiled a $35 billion package to stimulate the economy by boosting jobs, consumer demand, manufacturing, agriculture and exports, which analysts say will provide a significant boost to diesel demand in 2021.
COMMERCIAL VEHICLE SALES RISE
The gasoil market in particular is eyeing support from robust vehicle sales. Total passenger vehicle sales in the domestic market rose 4.65% year on year to 264,898 units in November, from 253,139 a year earlier, latest data from the Society of Indian Automobile Manufacturers showed.
“The main driver behind Indian gasoil consumption is the commercial vehicle segment, which hinges on the industrial sector. We are seeing some recovery in the commercial vehicle sales over November and December, albeit slowly,” said Senthil Kumaran, head of oil for South Asia at Facts Global Energy.
“However, medium and heavy commercial vehicle fleet’s overall utilization is somewhere between 70%-75%, putting a lid on demand from the freight segment. There could be some improvement in freight activity as the government kickstarts the vaccine rollout plan over the next two quarters,” he added.
With diesel accounting for about 40% India’s oil products basket, the demand recovery has already provided enough reason for all state-run and private refiners to lift operating rates to 100% of their capacities.
“We anecdotally hear that both state-run and private refineries are running at close to average 100% utilization rates. India’s refinery runs are expected to average 5 million m/d levels in December and January, which corresponds to 109% utilization rate. To give some context, Indian refinery utilization rates fluctuated between 115%-120% before the pandemic,” Kumaran added.
FGE expects gasoil exports from India will remain around the 500,000 b/d level until late January, before easing from February following the commencement of the spring refinery maintenance season.