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After posting double-digit growth in August, India's oil products demand in September declined as widespead rains and regional unrest took toll on transport, but analysts expect a rebound in October on the back of firm fundamentals and following the end of the monsoons.

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The sharp growth in consumption of LPG and jet fuel in September was not enough to offset a drop on demand for diesel and gasoline, pulling down overall oil products demand 0.8% year on year to 14.6 million mt, or 3.82 million b/d, latest provisional data from the Petroleum Planning and Analysis Cell showed.

"The conclusion of seasonal rainfalls, the onset of winter, and improving industrial demand amid festive season should propel growth in coming months, notwithstanding any increases in crude prices," said Sri Paravaikkarasu, senior consultant and Asia downstream specialist at Facts Global Energy.

The negative growth recorded in September was a steep decline from the double-digit demand growth of 11% year on year to 15.81 million mt, or 4 million b/d, posted in August.

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Analysts attributed the fall in demand to heavy rains towards the end of the June-September monsoon season and water sharing disputes between two southern states -- Karnataka and Tamil Nadu -- and political unrest in the northern state of Jammu and Kashmir.

"Reasonably healthy levels of rainfalls, riots in the southern states and weak stockpiling activities led to a sharp year-on-year decline in gasoline and gasoil demand," Paravaikkarasu said.

Diesel consumption fell more than 11% year on year to 5.22 million mt, from 5.89 million mt. But the fall was more from the previous month -- down about 15% from 6.1 million mt in August.

Gasoline also witnessed a similar trend, dropping 3.4% year on year and 17.6% month on month to 1.82 million mt in September.

"Oil products demand typically remains subdued in September due to seasonal rainfall. Reduced economic activities dampen gasoil demand. But, this September turned to be an oddity because demand not only dropped month-on-month but fell from year-ago levels as well," Paravaikkarasu added.

LPG, JET FUEL DEMAND UP

LPG demand posted the sharpest growth of all products in September, rising 16% year on year and 1.6% from August to 1.87 million mt, the data showed.

Larger subsidies granted for new connections and more LPG dealerships for oil marketing companies helped boost demand last month, according to analysts.

Around 3.3 million new connections were given in August, highest ever in a single month.

While the price gap between subsidized and non-subsidized LPG cylinders narrowed to a record low of Rupees 41.44 (62 cents) per cylinder in September, according to Facts Global Energy.

"This encouraged consumers to purchase beyond their fixed quota of 12 subsidized cylinders, along with a strong increase in commercial use," Paravaikkarasu added.

Other than LPG, India's appetite for jet fuel was another bright spot, with consumption rising nearly 12% year on year in September to 555,000 mt.

"Airline capacity has been increasing at about 20%, helping jet fuel demand grow at above 10%," Credit Suisse said.

Demand for naphtha fell 1.3% year on year to 1.05 million mt in September, while fuel oil demand grew 5.5% year on year to 591,000 mt.

With the government encouraging use of cleaner fuels and slashing kerosene subsidy, its demand fell 11% year on year to 501,000 mt in September, the data showed.

Over the January-September period, India's oil products demand rose 9% year on year to 143.04 million mt, or 4.1 million b/d.

"Fundamentals remain solid and we see demand springing back positively this month [October]. Gasoline demand should increase by an average 12% in the fourth-quarter, while gasoil consumption should post a 5% increase," Paravaikkarasu added.

The International Energy Agency in its Oil Market Report for October said that global oil demand was continuing to fall on vanishing OECD growth and economic slowdown in China.

For 2016, a gain of 1.2 million b/d was expected, with a similar rise expected next year.

The potential for colder weather should see global demand rebounding in the fourth quarter of 2016, the IEA report said.

--Sambit Mohanty, sambit.mohanty@spglobal.com

--Edited by Haripriya Banerjee, haripriya.banerjee@spglobal.com