Covid resurgence, high prices threaten India oil demand

A resurgence of the Covid-19 outbreak in parts of India is threatening to further hurt oil demand and adding to a political row over the impact of high fuel prices on the country's ailing economy.

Covid-19 cases have risen again across in India in recent days after declining for several months. Over 14,000 infections were reported in the last 24 hours, the most since 29 January, despite many testing centres having been closed.

Cases have been doubling every day in Mumbai, already one of the worst-hit cities in the pandemic, and are now back at levels seen in December. This has prompted the Maharashtra state government to seal over 1,000 buildings where at least five cases have been recorded, put the district of Amaravati under lockdown, shut schools and colleges in Pune and warn of a state-wide lockdown if infections continue to surge.

The worsening outbreak could deal a further blow to Indian fuel demand. Diesel sales in the country fell by nearly 9pc from a year earlier in the first half of February to 1.4mn b/d, the largest such decline since August. Gasoline use dropped for the first time since September, declining by 2.4pc to pre-Covid levels of 580,000 b/d in the period, according to estimates from state-controlled refiner IOC. Fellow state-run refiner BPCL today offered an ultra-low sulphur diesel cargo for export, possibly because of weak domestic demand.

The falling oil demand comes amid an intensifying political dispute over record-high retail gasoline and diesel prices. Prime minister Narendra Modi has blamed high oil prices on previous governments, despite having been in power for seven years, while oil minister Dharmendra Pradhan has pointed the finger at the Opec+ group of producing nations.

But opposition leader Sonia Gandhi yesterday accused the government of "profiteering" off "people's misery'' and demanded a sharp cut in taxes.

"What baffles most citizens is that these prices have been increased despite moderate prices of international crude oil," said Gandhi, the head of the main opposition Congress party. "To put it in context, the crude oil price is nearly half of what it was during the Congress-led government's tenure." The Congress party was in power in 2008, when Brent crude prices peaked at $147/bl, compared to around $64/bl today.

Fuel prices rose for 12 straight days to 20 February across the country, which Gandhi described as "little less than a brazen act of profiteering."

Gasoline prices have crossed 100 rupees/litre ($1.4/l) in parts of Rajasthan and are at Rs97/l in Mumbai, while diesel is at Rs88/l. IOC charges only around Rs32/l for its gasoline supplies to dealers excluding taxes and Rs33.7/l for diesel shipments, reflecting federal and state taxes of over 60pc on the fuels.

West Bengal, Meghalaya, Rajasthan and Assam have cut state taxes to offer relief to consumers, but Delhi is refusing to follow suit despite prodding from the Reserve Bank of India to lower rates.

Modi's BJP government more than tripled gasoline taxes since coming to power and raised diesel taxes ninefold, including large increases in March and May 2020 to raise funds for Covid-19 spending. And India's import dependence is rising, with domestic crude output falling to an 18-year low in 2020 despite efforts to incentivise drilling.

By S Dinakar