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Analysis: Gasoil a winner as India gears up for biggest-ever federal election


Platts Analytics expects 5% on-year gasoil demand growth in Q2

Refiners aim to cut exports, build domestic stocks ahead of polls

Attractive margins also prompt refiners to delay turnaround plans

Singapore — India's appetite for gasoil is set to witness robust growth in the second quarter as the country gears up for its biggest-ever federal election in April, prompting refiners to delay turnaround plans, limit exports and build stocks in expectation of a rise in incremental demand.

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About 900 million eligible voters -- about 10% more than in the last federal election in 2014 -- will have a say on who will form the next government when India goes to the polls from April 11, which officials and political parties are calling "the largest festival of democracy."

The federal polls, along with provincial polls in a few states, will provide an impetus to India's gasoil consumption as demand for commercial transportation is set to surge over the three-month period. The elections, set to be held in seven phases, will end on May 19.

"India's gasoil demand growth is expected to find support in the second quarter due to increased driving associated with campaigns leading up to the general elections. Overall, India's gasoil demand in Q2 should stay robust, with growth close to 5% year on year," said Lim Jit Yang, director for Asia-Pacific oil market analysis at S&P Global Platts Analytics.

India's growing demand for oil productsGasoil, which accounts for the biggest share of India's oil products basket, will help drive overall oil products demand growth. Platts Analytics expects India's overall oil products demand growth to be around 235,000 b/d in 2019, compared with growth of 200,000 b/d in 2018.

According to data from India's Petroleum Planning and Analysis Cell or PPAC, India's gasoil demand grew by 4.1% in 2018 to 82.65 million mt, from 79.43 million mt in 2017.

"On the demand side, the Indian general election will play a key role. Both gasoline and diesel demand should get an additional boost in coming months as election campaigns will result in higher vehicle movement across the country," said Senthil Kumaran, consultant at Facts GLobal Energy.

Wood Mackenzie expects India's gasoil demand to grow by 6.4% or 112,000 b/d year on year in 2019, compared with growth of 93,000 b/d in 2018.

"Increased travel activity for campaigning and implementation of infrastructure projects ahead of the elections will bolster diesel demand in H1 2019," Aman Verma, research analyst at Wood Mackenzie, said in a research report earlier this year.

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Several sources said that India's private refiner Reliance Industries had postponed a planned turnaround for one of the crude distillation units at its 35.2 million mt/year or 704,000 b/d export-oriented Jamnagar refinery in the western state of Gujarat, although there has been no confirmation from Reliance.

The CDU was supposed to undergo month-long maintenance starting in Q2, but this was heard to have been postponed until Q3.

Asian gasoil traders and analysts said the turnaround might have been pushed back due to higher gasoil demand ahead of the elections.

"Reliance will most likely wait for the elections to be over before undertaking the turnaround," Kumaran said.

In January, India's diesel exports fell close to 32% year on year to 1.84 million mt, from 2.7 million mt a year earlier, PPAC data showed.

"India's gasoil demand is quite good. They are cutting exports and building stocks," a trader said.

Another source said: "With gasoil consumption higher in the country, other Indian refiners will be channeling their gasoil supplies into the domestic market."

Other industry sources said supportive gasoil margins had also encouraged refiners to delay turnaround plans.

"For refiners, any push to delay a turnaround would probably be because of margins," a trader said. "There are very few reasons to cause refiners to shift turnarounds and it's not a decision they take lightly. But gasoil cracks are quite decent. So if you can run, why not run?"

On March 13, the FOB Singapore 10 ppm sulfur gasoil crack against front-month cash Dubai crude -- which measures the relative strength of a product against the crude it is produced from -- stood at $13.67/b. The gasoil/Dubai physical crack spread for March is currently averaging at $15.01/b, higher than the January and February averages of $13.51/b and $14.30/b, respectively.

Oil analysts are hopeful that some key initiatives of the Indian government -- such as building roads and industrial infrastructure -- will continue at the same pace after the polls, which would help gasoil demand maintain growth momentum.

-- Sambit Mohanty,

-- Clarice Chiam,

-- Edited by Wendy Wells,