Trailing oil demand in India shows economy not fully recovered
The world’s biggest lockdown may have eased in India, but the country’s oil refineries are finding it tough going to pull off a complete recovery as fuel demand remains below pre-coronavirus levels and stockpiles swell.
Operations across 23 refineries nationwide were at 77% of capacity in May, according to oil ministry data. While that was an improvement from a low of 72% in April, when stay-at-home orders decimated fuel demand and filled storage tanks to the brim, it was still well down on the 102% recorded a year earlier. The amount of crude processed, also known as refinery throughput, was almost 25% lower year-on-year last month.
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Across India, restrictions on everything from the movement of people to business operations put in place on March 25 pummeled demand for transportation and industrial fuels, placing Asia’s third-largest economy on course for its first annual contraction in more than four decades this year. Now, despite the reopening of factories and the resumption of domestic flights, fuel inventories built up during the more than 10-week lockdown remain stubbornly high.
“We still have that 90% to 95% storage capacity occupied and we have to tone that down slowly," said R. Ramachandran, director of refineries at Bharat Petroleum Corp. “We will be calibrating our refinery runs to be consistent with the demand and try to deplete the products in tanks to avoid unnecessary inventory carrying cost."
Since India started reopening, demand has improved dramatically as cars and trucks took to the roads and people returned to their offices. Still, a complete recovery could still be months away as Covid-19 infections continue to rise in the world’s second-most populous country. Lasting changes due to the virus -- such as a drop in international travel -- will make it tough to quickly get all the way back to pre-virus levels of fuel consumption
Globally, oil consumption across leading economies has struggled to fully rebound or expand from year-ago levels due to more permanent lifestyle changes as a result of Covid-19.
India’s gasoline consumption is now almost 86% and diesel about 90% of June 2019 level. said Sanjiv Singh, chairman of state-owned Indian Oil Corp. The country’s oil demand isn’t expected to get close to a full recovery until the end of 2020, and it will take two years to return to a normal growth trajectory.
While the rebound in fuel demand has been notable, going “beyond 90% recovery may take longer than what we have taken so far," said Singh.
IOC, the country’s biggest refiner, boosted run rates to almost 73% in May from about 53% in April. Its refineries may need another month before reaching a close to 100% utilization rate, by end of July, said S.M. Vaidya, director of refineries.
Meanwhile, run rates at Reliance Industries Ltd. in May were at its lowest level since July 2019 when the private refiner shut some units for maintenance. Operations at state-owned Bharat Petroleum also declined last month.
In the first two weeks of June, overall Indian demand for fuels, including jet fuel, hovered at 80%-85% of year-ago levels.
“Despite the easing of restrictions, India’s total oil products demand may be lower by an average of 500,000 barrels a day in June-July versus a year ago," said Senthil Kumaran, oil markets consultant at Facts Global Energy. State-owned refiners have been closely referencing the domestic fuel demand situation when making decisions on run rates, while private processors grapple with lower consumption both locally and abroad, he added.