India's crude demand to show resilience against third COVID-19 wave

The surge in COVID-19 infections in several cities in India is likely to hit oil product consumption, but industry sources said crude demand may not see an immediate impact as the third wave of the virus is likely to lead to less severe restrictions compared to the second wave in 2021.

Milder symptoms and better arrangements to combat the virus could also cushion the blow on crude demand this time, traders said.

"People are not going for [an] immediate reaction. Impact is not severe," a trader with a South Asian refinery said.

"Now metros (large cities) are impacted, and the insides of India are not hit. Symptoms are not severe [and] people are getting back onto their feet soon," the trader said.

On that note, S&P Global Platts Analytics said India's oil demand in the second half of 2022 is expected to be around 283,000 b/d higher than in H1.

"[This would be] driven by a more broad-based pickup in economic activity amid an improving COVID situation and widening vaccination rollouts," JY Lim, oil markets adviser at Platts Analytics, said, adding that crude imports are expected to rise further on the back of improving demand.

Still, refinery sources cautioned the impact on product consumption is likely to be more evident as private transportation slows down and people are confined to their homes.

"There is definitely reduction in product [consumption] compared to December. Many people are working from home [and] roads are clear," the same trader with the South Asian refinery said.

Based on the latest development, Platts Analytics revised India's 2022 oil product demand forecast to 270,000 b/d, down by 30,000 b/d from an earlier projection, though the full impact of the omicron variant is still being assessed.

OPEC said Jan. 18 that the economic recovery momentum in India has been slowing since the third quarter of 2021 amid the new wave of infection, as well as lingering impact of the delta variant.

"The slowdown in industrial and consumption activities might keep India's economic outlook cautious, especially as the new omicron variant of COVID-19 may increase uncertainties entering Q1 2022," the report said.

Gasoline may show resilience

India's gasoline complex might face some headwinds in the near term as state-wide lockdowns threaten mobility, but sources were hopeful that demand-side recovery would continue an upward trajectory when infection rates go down.

"Mobility is temporarily affected and will take a dip until lockdowns ease again, overall sentiment remains positive for the year as India gears toward living with the virus," a Singapore-based source said.

Driving activity, a proxy for gasoline demand, has tapered off in the country, with latest Apple Mobility data showing Jan. 18 driving activity at 54.17% above baseline levels, falling from the month-to-date average of 79.18% above baseline levels.

On the gasoil front, sources noted the limited restrictions placed to contain the spread of the virus thus far could soften the impact on domestic demand for the product, adding that it is too soon to gauge the extent of the impact.

"Not sure about that, domestic [gasoil] demand is always lagging for the number, so we never know until probably February," a source with a European trading house said.

Furthermore, tight supplies and strong gasoil cash differentials in the international market could incentivize refineries to export any excess barrels that cannot be absorbed domestically.

S&P Global Platts data showed that the FOB Singapore ultra-low sulfur diesel cash differential is averaging a premium of $1/b to the Mean of Platts Singapore gasoil assessment over January, up from 64 cents/b averaged over December.

Turbulent recovery for jet fuel

Asian jet fuel market sources said that while India's consumption of the product has been growing due to robust demand for domestic travel, this could pare back in the months ahead due to rising infection rates driven by the omicron variant as well as travel restrictions.

India's domestic jet fuel consumption rose 9.52% month on month to a 22-month high of 552,000 mt in December, Petroleum Planning & Analysis Cell data showed, with climbing COVID-19 vaccination rates boosting year-end domestic travel.

Sources said the robust figures for jet fuel consumption in December were not unexpected, given that omicron only emerged end-November and that there is typically a lag time for the impact of the virus to be reflected on consumption and production patterns.

Moving forward, traders said India's jet fuel consumption levels may take a hit due to a combination of factors, like surging infection numbers, numerous border and quarantine restrictions placed on travelers flying to and from India, as well as sky-high jet fuel prices.