India lockdown: Jet fuel, gasoil demand woes set to prolong

India's demand woes for gasoil and jet fuel are poised to suffer further through to the end of April, as the government extended a nationwide lockdown to May 3, still limiting road and air traffic as the country struggles to battle the rampant spread of the coronavirus.

The news cast a pall over the Asian middle distillates market, already groaning under the weight of India's surplus barrels spilling out into the spot market and pushing prices down amid limp regional demand.

Traders also cautioned that the market should brace for further incremental volumes from India, on expectations that exports will continue to surge due to the prolonged containment measures.

GASOIL BEARISH ON LANGUID DEMAND

The extended lockdown will only add to continued demand woes for gasoil due to a ban on most road and rail movements with the exception of the transportation of essential goods and services, Sri Paravaikkarasu, Asia Oil director at FGE Singapore said.

"About 85% of India's gasoil demand comes from the road sector [and] with most states placed under lockdown and borders sealed, there will be a strong pullback in freight movements," Paravaikkarasu said, adding that while the transfer of essential goods was allowed, the ban on inter-state buses and train movements would directly impact diesel demand.

"We estimate diesel demand to plunge by 1.2 million b/d in April, " Paravaikkarasu added.

The sharp contraction in domestic gasoil consumption was reflected in the latest data released by India's Petroleum Planning and Analysis Cell, or PPAC this week, with domestic gasoil consumption toppling 21.1% on month to hit a three-and-a-half-year low of 5.65 million mt in March.

"With a full-month lockdown in April, it is likely that demand will see a larger contraction of between 30%-40%," S&P Global Platts Analytics said in a report on Monday.

The bearishness was further compounded by weak automobile data as sales of commercial vehicles in March plunged 89% on year to 13,027, according to Society of Indian Automobile Manufacturers. .

At the Asian close Wednesday, the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes was assessed at minus $2.86/b to the Mean of Platts Singapore gasoil assessments, down a hefty $2.02/b since the start of April.

JET FUEL REMAINS NEGATIVE

The extended lockdown will also cause severe disruptions to India's aviation industry as all domestic and international flights in India remain suspended until May 3, translating to deeper losses on the cards for the jet fuel market.

PPAC's latest data showed India's jet fuel consumption in March shrunk to its lowest in over five years to 484,000 mt, and was last lower in February 2015 at 455,000 mt.

Meanwhile, CAPA India estimated the country's domestic and international air passenger traffic is expected to drop by as much as 50% on year, and losses of up to $3.6 billion in the second quarter this year are expected as airlines continue to bear the brunt of the coronavirus pandemic.

"There should be zero demand [for jet fuel barrels] now," a refining source in India said.

Reflecting this, the FOB Singapore jet fuel/kerosene cash differential crashed to a 14-year low of minus $3.71/b to the MOPS jet fuel/kerosene assessment on Wednesday. The last time it was lower was on November 29, 2005, at minus $4.60/b, Platts data showed.

REFINERS CUT RUN RATES, BUT OVERSUPPLY FEARS REMAIN

Indian refineries have opted to reduce run rates to combat dwindling demand for products with Indian Oil Corp -- the largest state-run refiner -- reducing crude throughput by 50% at its nine refineries, while Bharat Petroleum Corp. was also heard to have reduced run rates to 65%, S&P Global Platts previously reported.

PPAC data showed February's gasoil production fell 5% on month to its lowest in five months at 2.98 million mt. Meanwhile, co-distillate jet fuel production dipped 3.8% on month at 1.54 million barrels.

Still, despite the pullback in production, Platts Analytics said it was likely there would be some near term additional gasoil flows directed to Asian markets.

"Higher freight rates and a closed Western arbitrage mean Indian barrels are more likely to move east," it said.

Traders were wary of India's export volumes continuing to surge, with some saying this would spell more trouble for a region already flooded with supplies.

Platts' observations of open spot tenders show Indian refiners offered 1.029 million mt of gasoil, mostly the 10 ppm sulfur grade, for April loading dates to overseas buyers as they scrambled to offload surplus volumes. In contrast, March loading gasoil cargoes totaled around 271,000 mt, Platts' estimates showed.

Still, some sources said there were some signs that refinery run-cuts were having an impact.

"We do not have more gasoil exports in April from our end planned," an Indian refiner said Thursday, citing on-going refinery run-cuts as the reason for the halt in exports.

"It's still very early to say [if there will be exports for May-loading volumes]... it will be clearer in time to come [in terms of] the situation on the ground regarding COVID-19," he added.