India’s oil demand set to rebound from decline in January as COVID restrictions begin to ease

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India’s oil demand set to rebound from decline in January as COVID restrictions begin to ease

Posted on February 16, 2022

India’s oil demand falls 2.1% YoY in January but is expected to rebound in February

  • A strong recovery is expected in the second half, driven by a broad-based recovery in economic activity
  • India’s oil demand is expected to grow by 260,000 bpd in 2022, from growth of 240,000 bpd in 2021

India’s demand for petroleum products in January fell by 100,000 bpd or 2.1% year on year, dragged down by diesel and gasoline, which fell by 104,000 bpd and 38,000 respectively. b/d. Demand has been dampened by the reimposition of COVID-related restrictions. Kerosene/jet fuel demand decreased by 2,000 bpd on the year and decreased by 23,000 bpd on the month. It is worth mentioning that the demand for all other products increased by 43,000 bpd in total, with LPG increasing by 29,000 bpd.

India’s daily new COVID-19 cases averaged 83,000 over the past week, down from the recent peak of around 347,000 on Jan. 21. Daily infections in cities like Delhi and Mumbai have fallen sharply. States have been gradually removing restrictions as schools reopen and the state of Maharashtra has consulted experts to remove mask mandates. According to the Oxford Stringency Index, which measures government responses to the COVID-19 outbreak, restrictions have eased since February 1, which should help mobility and therefore demand for transport fuels.

After a decline in domestic fuel demand in January, we expect demand to pick up fairly quickly in February, as shown by toll transaction data released by the RBI. In fact, Apple’s mobility average for early February is up 20% from January’s level, while domestic flights show signs of picking up. From midnight on February 14, all international passengers arriving in India need only self-monitor for 14 days with no home quarantine requirement; even the pre-arrival RT-PCR test was waived upon presentation of a valid vaccination certificate. We expect oil demand from India to rebound in February, up 260,000 bpd monthly.

India’s economy performed well in January with GST collection at Rs 1.38 trillion, up 15% year on year. Although the January manufacturing and services PMIs eased from December levels, they remained well above the 50 threshold, indicating expansion in both sectors. However, the surge in the consumer price index continues to be a source of concern for the economy, with inflation in December 2021 hitting a five-month high of 5.6%. On the monetary policy front, the Reserve Bank of India kept the repo rate at 4% in December, maintaining an accommodative monetary policy to support the economy.

The union’s budget announced this year on February 1 focused on infrastructure spending in the roads, railways, housing and defense sectors as part of PM Gati Shakti’s mega infrastructure plan. “. The investment allocation, which is the main driver of the infrastructure push in the current central government budget for the financial year 2022-23, has been increased by 35.4% year on year to 7.5 trillion rupees from the current Rs. 5.54 trillion, which will boost industries like cement, steel, etc., thereby laying the foundation for good growth in oil demand. The government has even pledged to construct 25,000 kilometers of new highways in the financial year 2022-23 and invest Rs 480 billion in the housing sector.

Elections are underway from February 10 to March 7 in major Indian states. Despite high international oil prices, domestic marketing companies may not have been able to pass on high prices to customers, mainly due to surveys, as retail fuel prices are a politically sensitive topic . Retail prices can be expected to rise in line with high international prices once the polls are over, which could further fuel already high inflation and have the potential to slow the already fragile recovery in demand. In addition to releasing Strategic Petroleum Reserves (SPRs) to state refiners last year, in conjunction with other major US-led economies to cool international oil prices, India has also cut fuel taxes to mitigate the impact of high prices on consumers.

India is heavily dependent on crude imports and its SPR is relatively low compared to other major Asian consumer countries such as China, Japan and South Korea. India’s relatively high inflation means it has less room to stimulate its economy, although growth is expected to be strong at 8% for 2022. Diesel demand is expected to rebound strongly as activity manufacturing is picking up momentum and jet fuel usage will also improve as international flights begin to resume, although they are likely to remain well below capacity. Looking further ahead, India’s oil demand in H2 is expected to be 355,000 bpd higher than in H1, driven by a broader recovery in economic activity amid an improving COVID situation. and expanding vaccination deployments. Overall, India’s oil demand is expected to increase by 260,000 bpd in 2022, compared to growth of 240,000 bpd in 2021.


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Felix J. Dixon