India lockdown: Indian gasoline exports to put North Asian suppliers in jeopardy

India's decision on Tuesday to lock down over a billion of its people could pose a grave threat to South Korean and Chinese gasoline exporters as a potential downfall in South Asia's motor fuel demand would lead to excess Indian supplies flooding the Asian market.

The lockdown, which started at midnight on March 24, would last for three weeks and would apply to all the states and territories in the country.

Prime Minister Narendra Modi, in a nationwide televised address last night, warned that radical measures were required to combat the COVID-19 spread in India, the world's second most populous nation with over 1.3 billion people.

The stricter measures come after the country had earlier initiated the "Janta Curfew" and the restriction on movement of residents in some 75 districts across the country to curb the spread of this pandemic.

As a result, Asia's second biggest oil consumer looks set to register either a decline or slower growth in motor fuel demand this year as the lockdown would drastically limit domestic travel and transportation in the second-quarter and possibly beyond, analysts said.

In 2019, India's diesel demand rose 10.2% on the year to 91.53 million mt, while gasoline consumption rose 8.7% to 30.04 million mt, according to data from the country's Petroleum Planning and Analysis Cell.

However, the country's fuel demand could be weaker in 2020 due to the slowing economic growth. The nationwide lockdown to contain the spread of the coronavirus would dampen gasoline and diesel consumption even further, JY Lim, oil markets adviser at S&P Global Platts Analytics, said.

With major Indian refiners maintaining normal operations at the moment, regional traders and market analysts noted that the country could soon accumulate unwanted motor fuel inventory and be forced to look to the export market to clear excess supplies.

India exported 1.03 million mt of gasoline in February, up 4.8% from a year ago and 26.3% higher than the 813,000 mt exported in January, the PPAC data showed.

"India may seek to offload any excess diesel and gasoline supply by increasing export volumes in the next few months," a fuel marketing manager at state-run Bharat Petroleum Corp. said.

State-run Indian Oil Corp. said all of its refineries have been operating at 100% capacity even after the first phase of lockdown at 75 districts on Monday.

IOC officials said the uplift of finished products from the refineries remained normal with storage locations building up stocks.

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Excess supply in Asia

The expected uptick in Indian gasoline exports raised alarm bells among South Korean and Chinese refiners as these major motor fuel suppliers have been desperately seeking overseas outlets since late January to clear their own excess supplies.

South Korean and Chinese gasoline and diesel producers have been focusing more on exports than domestic sales as consumer demand in North Asia has tumbled over the past several weeks, with transportation coming to a halt due to COVID-19.

China exported 2.72 million mt of gasoline in the first two months of this year, up 32% from the same period a year ago, latest data from the General Administration of Customs showed.

South Korea exported 8.4 million barrels of gasoline in February, up 21% from 6.94 million barrels exported a year ago and up 16.7% from 7.2 million barrels in January, latest data from state-run Korea National Oil Corp. showed.

"[South Korean] refinery run rates have come down and production has declined since the coronavirus outbreak in late January. But refiners are still trying to clear excess domestic barrels by selling them off overseas ... more competition in the export market is not the ideal situation," a Seoul-based Korea Petroleum Association official said.

Indian oil product exporters often clash with South Korean and Chinese suppliers in various export outlets including Australia, Indonesia and Vietnam.

Reflecting the excess supplies hitting the regional spot market amid tepid consumer demand across the region and the world, the Asian gasoline market structure fell deep into contango on March 13, and has remained firmly entrenched in negative territory ever since.

The prompt April/May and May/June swap spread were assessed at minus $1.30/b and minus $1.40/b, respectively, at the close of trade in Asia on Tuesday.

Likewise, the FOB Singapore 92 RON gasoline crack spread against front-month ICE Brent crude fell to a 12-year low of minus $5.74/b on Tuesday, sharply lower versus the $6.97/b average in February, Platts data showed.