Indian fuel demand growth faces gloomy prospects

India's oil product demand faces a rapid contraction in the April 2020-March 2021 fiscal year amid an already weakening economy and now the impact of the Covid-19 pandemic. But state-controlled oil companies are more upbeat about demand growth prospects.

The IEA forecast India's fuel demand to shrink by 8pc, or by 415,000 b/d, to 4.6mn b/d in 2020 in its May Oil Market Report. The country's product demand typically tracks GDP growth. But total fuel use in 2019-20 was near flat at 213.7mn t despite GDP growing by 4.2pc, an 11-year low.Diesel, which accounts for over 40pc of the country's product consumption, fared worse, averaging 1.68mn b/d from 1.71mn b/d a year earlier. Gasoline use climbed by 5.6pc at 692,000 b/d but trailed a 714,000 b/d state forecast.

"India will see a suppression in fuel demand but consumption will not contract," state-controlled refiner Bharat Petroleum's refining head R Ramachandran told Argus. He expects diesel demand to revive faster after the government opens up agriculture and trucking completely after Covid-19 lockdowns are eased. Gasoline is affected because nearly 60pc of the total use is from 10 metropolitan area, most of which are struggling to contain the coronavirus, he said.

Rating agency Standard & Poor's forecasts the country's GDP to shrink by 5pcin 2020-21, while Indian state-run bank SBI is predicting a 6.8pc contraction. Credit ratings agency Moody's Investors Service has downgraded India's sovereign rating to Baa3, one level higher than junk status this week with a negative outlook, even without taking the impact of the pandemic intoconsideration.

When India's economy grows by 6pc, fuel use climbs by 4pc, said an official from a state-controlled refiner. So a 5pc contraction in GDP translates into a 3pc contraction in fuel demand. The slump will also delay investments in new refining capacity and retail fuel outlets.

India's diesel sales in April dropped by 55pc from a year earlier to 808,000 b/d, oil ministry data show, while gasoline demand fell by around 60pc to 274,000 b/d and jet fuel consumption was down by about 90pc to under 15,000 b/d. These falls were narrower in May at 31pc, 37pc and 85pc respectively for the three products, with demand expected to remain negative in June.

India's lockdown has failed to curb the outbreak, with Covid-19 cases numbering nearly 230,000 from less than 800 when the lockdown began 25 March. The lockdown had flattened the wrong curve, referring to the slump in GDP, said industrialist Rahul Bajaj, the managing director of Bajaj Auto.

Some of the key indicators of transport fuel demand such as auto sales, industrial activity and air travel remain weak despite several relaxations this month in the latest phase of the three-month lockdown.

Domestic auto sales will fall by a double-digit percentage in 2020-21, a second successive year of falls, to 2010 levels, said ratings agency Crisil, a Standard & Poor's unit. Sales of passenger vehicles are forecast to fall by 26pc, two-wheeler sales will shrink by 23pc and commercial vehicles sales slipping by 28pc. Indian auto producer Suzuki posted a 89pc fall in sales in May from a year earlier.

Demand for trucks, a key factor for diesel demand, has shrunk to 30pc, according to the All India Motor Transport Congress. The country's 9mn trucks have been affected by a lack of available labour and issues over interstate travel.

By S Dinakar