Breaking down the demand surge for petroleum products in India

Demand for refined petroleum products hit a record in FY23, led by transportation fuel. The Petroleum Planning & Analysis Cell (PPAC) said consumption reached 222.30 million tonnes in the last fiscal. Mint explains this spike

What’s the trend in petro products?

The 222.30 million tonnes of petroleum products consumed in FY23 was 10.2% higher than the year before. The previous record for consumption came in FY20 at 214.13 million tonnes. Demand was impacted in FY21 due to the covid-19 pandemic. In FY23, demand for most products crossed pre-covid levels as various sectors of the economy made a recovery from the pandemic slowdown. Demand for diesel—the most-consumed fuel in India—stood at 86.82 million tonnes. Demand for petrol came in at 35.09 million tonnes while India’s LPG consumption also hit a new record of 28.62 million tonnes.

Why is India seeing such a surge?

The increase in consumption of petrol, diesel and jet fuel during FY23 came on the back of growth in industrial activity and travel. These activities recovered after slowing down in the previous two fiscals because of the pandemic. Sourav Mitra, director of consulting at Crisil, noted that enhanced refining of crude imports and improved utilization of petrol and diesel across India have contributed heavily to the rise in demand. The rise in refining is in tandem with increased crude imports. This reflects a global trend—oil demand is rising globally due to a rebound in Chinese consumption.

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Graphic: Mint

Does the Ukraine war have anything to do with this?

The Russian invasion sparked an energy crisis. India had to diversify its oil import sources and raise imports for energy security. Cheap oil from Russia also added to import bill. According to provisional trade data released by the commerce ministry on Wednesday, India’s import of crude oil and petroleum products rose 29.5% to $209.57 billion in FY23.

Will the demand stay strong this year?

The global economy is expected to slow down. Yet, the demand for petroleum products in India is expected to stay robust. According to PPAC projections, the demand is likely to set a new record in FY24, nearly 5% higher compared to FY23. That’s because The demand for petrol and diesel will remain strong for the same reasons we saw last fiscal. Sourav Mitra of Crisil said that increase in domestic consumption, fuelled by accumulated household savings during and after the pandemic, will also boost demand.

What does this mean for OMCs?

Increase in petroleum product demand boosted refining margins of oil marketing companies (OMCs). According to PPAC, in April-December, major state-run refiners at least doubled their gross refining margins (GRM). Indian Oil Corp.’s GRM rose from $8.52 to $21.08 per barrel; Hindustan Petroleum Corp. from $4.50 to $11.40; Bharat Petroleum from $6.78 to $20.08; Mangalore Refinery and Petrochemicals from $5.80 to $11.70. Refining margins are likely to improve further.

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