India's September fuel demand steady, rising oil prices cloud outlook

India's September fuel consumption crawled higher month-on-month as economic activity continued to ramp up, government data showed on Wednesday, but soaring global oil prices could stall a recovery in the world's third-biggest oil importer and consumer.

Fuel consumption, a proxy for oil demand, totaled 15.92 MM tons last month, up slightly from August and 5.2% higher than in September 2020, data on the Petroleum Planning and Analysis Cell (PPAC) website showed. But overall, consumption was still 1.7% below September 2019.

Monsoon rains and shipping constraints had prompted a dip in consumption in August. Petrol sales slipped 3.5% from August, but climbed 6% year-on-year and 9.5% from September 2019.

Increased personal mobility drove petrol demand, "which has clearly moved above pre-COVID levels," said Hetal Gandhi, director at CRISIL Research. Consumption of diesel, which usual accounts for about 40% of refined fuel sales, also eased 1.7% month-on-month to 5.51 MM tons, and was 5.6% lower compared with September 2019. But diesel sales rose slightly from the same period last year.

"While overall diesel demand still remains below pre-COVID levels, a recovery is in line with a rush ahead of the festive season," Gandhi added. However, soaring global crude prices could slow the rebound, with India signaling late last month that elevated global oil prices could also speed up the transition to alternative energy sources.

"I see a gradual recovery in demand from here, but high oil prices could pose a serious problem for Indian consumers," Refinitiv analyst Ehsan Ul Haq said. Versus a year ago, sales of liquefied petroleum gas (LPG) increased 4.5% to 2.36 MM tons, while naphtha sales fell 0.5% to 1.11 MM tons. Sales of bitumen, used for making roads, were up 7.2%, while fuel oil use rose 21%.

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