Singapore — Indian refiners have so far stayed away from slashing crude run rates sharply despite the surge in COVID-19 cases to record highs, but with a rise in regional lockdowns and its subsequent impact on mobility and industrial activity, analysts said they will be forced to scale back crude runs in anticipation of a slowdown in oil demand.
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However, analysts told S&P Global Platts that the run cuts may not be substantial as export demand for some oil products remain robust with other regional economies and oil consumers showing a recovery trend.
"I think we could see run rates in India easing to some extent in April and beyond, given the increase in the number of pockets witnessing lockdowns and rising infection numbers," said Alex Yap, senior oil analyst at S&P Global Platts Analytics.
India has witnessed more than two million cases in the last seven days, the highest reported by any country in a seven-day period.
But Indian Prime Minister Narendra Modi said in an address to the nation April 20 that the country was well prepared to combat the pandemic, compared with last year's first wave, and he has urged leaders of the various states to focus on micro containment zones and use the option of a lockdown only as a last resort.
"Lockdowns are easy but arguably quite an ineffective means of stamping out COVID-19 in the world's most populous country. As the economy started to ride the second wave of the pandemic, real activity growth began to weaken. These trends have further to run as the gravity of the second wave of the pandemic unfolds via increasing restrictions on economic activity," ING Economics said in a research note.
Run rates were robust until March
Until the end of March, India's run rates remained robust. The average run for all categories of refineries in India rose to 99% in March compared with 97% in February, the latest survey of the oil ministry showed.
In March, state-run refineries recorded a 106% run compared with 102% a year-ago and 107% in February.
The flagship state-run refiner Indian Oil Corp., or IOC, recorded an average of 100% combined run for all its nine standalone refineries in March compared with 98% in the year-ago month and 101% in February. India's second largest state-run refiner Bharat Petroleum Corp, or BPCL, registered a 118% run in March compared with 116% a year ago and 127% in February.
Hindustan Petroleum Corp Ltd., or HPCL, India's third largest state-run refiner, recorded a run rate of 118% in March compared with 113% in March 2020 and 114% in February.
"The outlook for India's oil demand is a bit unclear at the moment. Our run rate as of now is above 95%. Any further cut will depend on how demand shapes up," said an official at a leading Indian state-run refiner.
Indications of slowing demand are starting to trickle in as crude procurement traders have been adopting a go-slow attitude in picking up cargoes during the June trading cycle. This has taken a toll on the broader Middle Eastern sour crude complex, with the physical Dubai crude market structure tumbling to an eight-week low on April 22.
Oil demand in India declined 470,000 b/d in 2020 when the first wave of the pandemic pulled down the country's oil products consumption to the lowest level in nearly two decades.
Far from slipping into the red
India's efforts at avoiding a national lockdown will keep hopes of oil demand registering positive growth in 2021 alive, although the grow rate may turn out to be modest, analysts said.
"Lockdowns have been imposed in some pockets and provinces. Therefore, we have adjusted India's total oil product demand growth for 2021 down to 400,000 b/d for the latest update, as against 440,000 b/d last month, pending further adjustment in the future depending on the COVID-19 situation," said Lim Jit Yang, advisor for oil markets for Asia-Pacific at Platts Analytics.
Indian refiners are broadly expected to maintain their gasoline production plan unchanged for the rest of April as healthy cracks in the Asian middle distillate market would likely encourage the fuel suppliers to capture the strong export margins, according to a fuel marketing source at BPCL.
However, some Indian refineries may consider cutting back on jet fuel and diesel output as near-term aviation and industrial fuel demand will likely take a hit due to the suspension in key international flights to and from India, while major construction projects were reported to have been put on hold in an effort to avoid a large crowd work environment, the refinery marketing source said.
"We will see some run cuts and it's starting to happen this month but the good thing is that export demand for products is robust. So we still believe run rates won't fall massively," said an official at a leading private refiner.