S&P Global Commodity Insights: Surging prices hold back India's oil demand growth momentum, albeit temporarily

Press Release

18-05-2022

India's sustained uptrend in oil consumption came to a halt and slipped into the red in April from March levels as rising domestic retail fuel prices on the back of surging crude took a toll on gasoline, diesel and LPG demand, but analysts said the trend could get reversed in May.

"Middle distillates will account for more than half of 2022 growth, partly due to a slow recovery last year. But there are still risks of downward adjustments as the Russian-Ukraine conflict continues to evolve and the worry of a global or regional economic recession has been growing," said Lim Jit Yang, advisor for oil markets at S&P Global Commodity Insights.

Domestic oil products demand fell 4% month on month to 18.64 million mt, or 4.9 million b/d, in April, data from the Petroleum Planning and Analysis Cell showed. The rise in crude prices due to the Ukraine-Russia conflict pushed up domestic prices of transportation fuels and other oil products in India. Gasoline demand fell 3.8% month on month to 2.8 million mt in April from a three-year high in March, when COVID-19-related curbs were withdrawn and consumption rose sharply. Demand for diesel, the main constituent in the overall demand for oil products, fell 6.5% month on month to 7.2 million mt in April. Demand for LPG, naphtha and jet fuel also fell by 12.7%, 4.3% and 0.7%, respectively, month on month in April.

India's overall demand for oil products rose 9.6% year on year in April. Demand for diesel rose 7.9% year on year to 7.2 million mt, while demand for gasoline rose 17.4% to 2.8 million mt. Demand for LPG rose 2.4% year on year to 2.16 million mt, while demand for jet fuel rose 31.8% to 539,000 mt.

Over January-April, demand for oil products rose 4.7% year on year to 73.25 million mt, or 4.8 million b/d, as economic activity improved after the country's third wave of COVID-19. Demand for diesel and gasoline rose 1.9% and 5.1% in January-April, respectively, while the demand for naphtha fell 6.6% year on year. Demand for jet fuel and LPG also rose in the four-month period by 12.3% and 5.4%, respectively.

According to Platts Analytics by S&P Global Commodity Insights, India's oil demand is expected to grow by 245,000 b/d year on year in 2022, revised up by about 20,000 b/d from an earlier outlook, due to better-than-expected demand trends. But year-on-year oil demand growth could ease to 195,000 b/d in 2023. Gasoil demand is set to improve as manufacturing activity regains momentum, while jet fuel use will also improve as international flights start to pick up, though they are likely to remain well below capacity, Platts Analytics added.

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