New Delhi — Indian oil demand is recovering faster than expected, with gasoline consumption already at pre-pandemic levels, and the upcoming festival reason is expected to give a further boost to overall oil-product consumption, Indian Oil Corp. Chairman Shrikant Madhav Vaidya told S&P Global Platts in an interview.
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While the country's appetite for jet fuel would continue to suffer in the near term, Vaidya added that higher auto sales were supporting oil consumption.
"Gasoline has already crossed the pre-COVID-19 levels, and diesel too is edging towards pre-COVID-19 levels. The festive season would give a further boost to the demand," Vaidya told Platts during the India Energy Forum by CERAWeek.
Indian oil-product demand grew by 7.2% month on month in September, with gasoline consumption hitting a seven-month high as commercial and industrial activity picked up, data from the Petroleum Planning and Analysis Cell showed. That was still down 4.4% year on year at 15.47 million mt, or 4.1 million b/d, but consumption has been increasing since the government began to ease the nationwide lockdown in June.
Gasoline consumption returned to pre-pandemic demand levels in September, rising 3.3% year on year and 2.91% month on month to 2.45 million mt, PPAC data showed. Gasoil consumption rose 13.2% month on month in September to 5.49 million mt, or 94% of September 2019's volume.
"With successive unlocks of the economy, market demand has been on the recovery path. The latest incoming numbers for September show faster-than-expected recovery," Vaidya said.
"This, obviously, is related to the green shoots visible in the latest round of economic data. Our car and two-wheeler sales are up year-on-year, and rail freight traffic has also registered growth in September 2020 compared to September 2019. Besides, agencies across the board see India rebounding in 2021-22 [April-March] and covering up for most of the current year's loss of gross domestic product," Vaidya said.
Auto sales aid recovery
In September, domestic passenger vehicle sales grew 26.45% year on year to 272,027 units. Two-wheeler sales rose 11.64% to 1,849,546 units, according to the Society of Indian Automobile Manufacturers.
However, jet fuel demand remains in the doldrums. Indian jet fuel consumption plunged 51.91% year on year to 314,000 mt in September. However, that was 22.67% higher month on month, marking the fifth consecutive month-on-month increase to the highest since 484,000 mt in March, PPAC data showed.
"While there has been a pick-up in demand for aviation turbine fuel, we can get back to pre-COVID levels only when there is a COVID vaccine in place," Vaidya added.
India on Sept. 30 extended a ban on international flights due to end that day until Oct. 31 after a resurgence in coronavirus infections.
S&P Global Platts Analytics expects Indian oil demand to fall 530,000 b/d year on year to 4.5 million b/d in 2020, before rebounding by 500,000 b/d in 2021.
Commenting on the outlook for crude oil prices, Vaidya said he expected prices in early 2021 to be slightly higher than now.
"I see Brent prices averaging around $44-$45/b in the first quarter of 2021 as demand picks up with the easing of restrictions. On the supply front, OPEC+ is likely to ease their production cuts in January in line with their agreement," Vaidya said.
"Futures markets continue to be in contango, indicating prices are expected to rise. However, if a robust second wave happens in Europe and elsewhere, it could be a dampener on oil demand, and OPEC+ might have to extend the current cuts. Of course, sustaining cuts would be brutal for many group members as they grapple with declining oil revenues amidst the pandemic," he added.
Vaidya said India's push toward biofuels meant some of those products would take a share of oil demand in the future.
"India views compressed biogas as a game-changer that can address multiple energy objectives and is integral to our 15% natural gas penetration target."
India is targeting production of 15 million mt of compressed biogas by 2023 from 5,000 plants being planned to set up as part of the country's Sustainable Alternative Towards Affordable Transportation program.
"Further, because of increasing policy thrust on biofuels in India, activity is gathering pace in 2-G and 3-G ethanol, waste-to-fuel, and used cooking oil to biodiesel. India is steadily increasing its ethanol blending ratio in gasoline with a target of 20% blending by 2030," Vaidya said.