India comes out of lockdown

• Date: 01 July 2020
• Published date: 01 July 2020
• DOI: http://doi.org/10.1111/oet.12803

FOCUS

India comes out of lockdown

India is the world's third biggest oil consumer and among

the countries that imposed the tightest lockdowns,

resulting in some of the sharpest hits to energy demand,

in what was a fast-growing market. We take a closer look

at the country's position before it implemented restric-

tions, the current situation and what might happen next,

given an on-going rise in cases and localized restrictions.

While many east Asian nations, including China, Tai-

wan, South Korea, and Vietnam, came through lockdown

relatively quickly, successfully and with few casualties,

other countries in the Asia-Pacific region, especially in

south Asia, have faced more prolonged restrictions and

on-going outbreaks. This has certainly been the case for

India, although its oil demand has now rebounded from

the lows seen during the main phase of national lock-

down, which lasted from 25 March to 31 May—with

some relaxation part way through to allow economic

activity to pick up. However, demand is expected to

struggle to recover to year-ago levels in coming months,

and overall demand numbers for 2020 are likely to be

down on 2019—rather than the 4%-6% increase that had

been widely expected.

Nevertheless, there has been some recovery.

Figures from mid-June show that India's diesel consump-

tion jumped by nearly 70% from April to May (see

Figure 1), and gasoline demand is up over 80%, although

both are still well down on year-ago levels. Demand for

gasoline, which is mainly used in personal transport, has

received a boost as people switch to personal vehicles

over public transportation. Diesel is recovering less

quickly as it is linked to wider industrial activity and eco-

nomic expansion. Petrochemical demand for naphtha

and other products began to pick up as operations were

resumed from late April. Demand for jet fuel remains at

very low levels and is not expected to recover signifi-

cantly for some time, given massively reduced flight

numbers.

On the upside, there has been a rise in LPG demand,

which was helped by the free distribution of cooking cyl-

inders to more than 80 mn poor households, and high

use in domestic settings as the lockdown closed alterna-

tives. LPG demand is expected to grow by 6% to 7% in

2020, according to state oil company, India Oil Company

(IOC).

1

By mid-June, India's first half June fuel demand

had recovered to 80% to 85% of year-ago levels, up from

77% in May, according to Oil and Steel Minister,

Dharmendra Pradhan.

1|REFINERS RAISE RUNS

State-owned IOC (India's largest refiner) said it was

aiming to increase throughput to 90% of capacity across

its nine refineries by the end of June as economic activity

gathers steam, up from lows of 40% to 45% earlier in the

outbreak. IOC's crude throughput stood at 83% on

10 June, which was up sharply on May and more than

enough to satisfy domestic demand. Even though

demand remains weak, India's refineries still have annual

production targets to meet, leaving them with a surplus

that must be exported or stored. April data showed

exports of refined oil products for the month were up

36.9% year on year at 6.04 mn mt. For the January-April

period, oil product exports rose 16.3% to 21.64 mn mt.

Gasoil exports, in particular, are believed to have stayed

at elevated levels in May and June, but shrinking product

export options will probably make some private refiners

reduce planned crude runs in the coming months. Crude

stocks are at tank-top, enabling high-refinery throughput,

although recent OPEC-plus cuts to term deliveries could

see more stored barrels used as refiners up runs through

the summer.

With the economy still struggling and coronavirus

cases still rising, domestic demand for gasoline and die-

sel, which make up for the bulk of the oil products bas-

ket, remains under threat. Targeted restrictions, such as

those recently imposed on Chennai in Tamil Nadu to

control a local outbreak, are continuing to weigh heavily

on oil demand in some regions, and this type of action

could last well into the second half of 2020. Platts Analyt-

ics expects India's oil demand in the second quarter to

contract by over 1 mn bpd year on year (from a total

demand of over 5 mn bpd), before improving to a fall of

90 000 bpd in the second half of this year. It expects oil

demand to fall 400 000 bpd for the whole of 2020.

On the supply side, India remains reliant on crude

imports for the bulk of its needs, and these are down

from the 4.63 mn bpd seen in May 2019, although

detailed figures are not yet available. Oil imports for 2019

as a whole were 4.71 mn bpd, up 170 000 bpd on 2018,

DOI: 10.1111/oet.12803

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