Analysis: High prices, virus resurgence may cast dark clouds over India's crude runs

Indian refiners are starting to slow their crude runs, as high retail prices have dented domestic appetite for oil products -- a trend that could get prolonged if the resurgence of COVID-19 in some provinces leads to another round of lockdowns and movement restrictions, analysts told S&P Global Platts.

As states such as Maharashtra and Karnataka witness a sharp surge in cases prompting authorities to implement restrictions, analysts said that demand for certain oil products like gasoil and gasoline could face another setback, resulting in refiners to adopt a cautious approach on throughput.

In addition, maintenance at some refineries in April would also keep crude throughput at a low ebb, they added.

"Indian refiners are holding back crude runs as demand slows with headwinds ahead in the near term, including high fuel prices and localized lockdowns due to rising cases of COVID-19," said Lim Jit Yang, adviser for Asia-Pacific oil markets at S&P Global Platts Analytics.

Platts Analytics expects India's oil demand in 2021 to remain slightly below the 2019 level due to weakness in the first half, but will register a growth of 440,000 b/d on the year, after declining 470,000 b/d in 2020.

India's demand for oil products in February fell 4.9% on the year to 17.2 million mt, or 4.8 million b/d, latest data from the Petroleum Planning and Analysis Cell showed, reflecting weakness in its economy and the fallout of higher global crude prices.

Demand for diesel fell 8.5% on the year to 6.6 million mt, while demand for gasoline fell 3% on the year to 2.4 million mt in the same month.

Run rates may slip further

Average run rate at all Indian refineries slipped to 97% in February from 103% in January, oil ministry data showed, compared with the February 2020 run rate of 111%. For the April-February period, average run rate stood at 88%, compared with 102% level the year-ago, reflecting the overall impact of the coronavirus lockdown.

India's biggest private refiner Reliance Industries Ltd. recorded a combined run of 93% at its two refineries at Jamnagar in February, down from 108% a year earlier, according to oil ministry officials. For the first 11 months of the current fiscal year, combined runs stood at 88%, compared with 102% in the April-February period of the previous fiscal year.

Reliance's domestic-focused refinery has a capacity of 33 million mt/year (660,000 b/d) while capacity at the export-oriented plant at Jamnagar is at 35.2 million mt/year (704,000 b/d). In February, the domestic refinery ran at 105%, compared with 114% a year earlier, while the export-focused refinery ran at 82%, compared with 103% in the same month a year earlier.

Overall, Indian refiners processed 18.62 million mt of crude oil in February -- an average of 4.87 million b/d -- down 11.84% year on year. The February volume was 14.63% lower from January levels.

"High retail oil prices and the fear of using public transportation will keep a lid on demand as COVID-19 cases rise in India," said Sumit Pokharna, vice-president at Kotak Securities. "As more travel restrictions take place, lockdowns are announced in bits and pieces, and people again start working from home, the oil market will again feel the pinch."

International, domestic prices

"High oil prices that we have witnessed both in the local and international markets in the earlier part of the year took a toll on both domestic demand and throughput. There will be pressure on refiners to keep throughput at modest levels," said one industry source.

In addition there are some maintenance being scheduled, such as by Hindustan Petroleum Corp. Ltd., which plans to take its 130,000 b/d Mumbai refinery offline in April, sources added.

Indian refiners are also keeping a close eye on international price movements amid an anticipated slowdown in global demand to ensure they can pass on the drop in crude oil prices to retail consumers, analysts said.

Prices of crude oil and petroleum products in the international market have been on a constant uptrend since November 2020 and crude had risen to as high as $70 a barrel in recent weeks.

"Due to growing worries about rising COVID-19 cases in Europe and Asia and concerns over the side effects of the vaccine, prices of crude oil and petroleum product in the international market softened in the second fortnight of March 2021," Indian Oil Corp. said in a recent statement.

Accordingly, Indian oil companies have reduced the retail selling prices of diesel and petrol, bring some relief to motorists and transporters across India, IOC said, adding that domestic LPG prices had also been reduced.