India's appetite for oil products in the October-December quarter is set to get a boost from the upcoming festival season as well as the agricultural season, recovering from a few months of subdued consumption because of excessive monsoon rains, industry sources and analysts told S&P Global Commodity Insights.

Provincial elections in some states as well as the marriage season are also expected to lift consumption of transport fuels, they added.

"Looking ahead to Q4, we estimate India's oil demand to grow by 3.5%-4% year over year. We forecast an annual demand increase of 50,000-55,000 b/d for both gasoline and diesel in Q4, although the northeast monsoon rains may slightly impede demand," said Himi Srivastava, South Asia oil analyst at Commodity Insights.

The latest provisional data from the Petroleum Planning and Analysis Cell of the oil ministry showed that India's oil product demand fell 1.6% year on year to 17.92 million mt (4.7 million b/d) in September.

Demand for oil products was also down 2.7% month on month as above-average rainfall in September reduced demand for diesel to run pump sets to irrigate farmlands. In addition, maintenance during the rainy season in the refineries also kept demand for oil products at low levels.

Monsoon woes

The monsoon season, typically from June to September, was 8% above the long-term average in 2024, causing excessive rainfall and infrastructure damage across the country. The southwest monsoon withdrew on Oct. 15, while the northeast monsoon began five days earlier, likely bringing above-average rainfall to the southern peninsula and eastern regions during October and November.

"India's oil demand decreased year over year in September 2024 due to heavier-than-normal rainfall, which affected road movement, construction, and mining activities," Srivastava said.

"This particularly dampened diesel demand, which fell nearly 2% compared to the previous year. However, gasoline demand remained resilient, growing by 3% year over year, although it was down from the previous month."

India's diesel demand in September fell to 6.37 million mt, down 1.8% year on year and 2% lower compared with August. Gasoline demand was at 3.15 million mt in September, up 3% year on year but 6.3% lower on the month, PPAC data showed.

In the January-September period, India's oil products demand rose 2.8% year on year to 177.46 million mt. Demand for diesel and gasoline rose 2.2% and 8.4% year on year, respectively, in the nine-month period.

India's oil products demand rose 4.7% year on year to 230 million mt, or 4.9 million b/d, in 2023, PPAC data showed, reflecting gains from lower crude prices after the oil market discounted the impact of the Russia-Ukraine war on global supplies.

Uptrend seen from October

"Domestic oil demand is expected to show an uptrend from October as the monsoon season and annual refinery maintenance season have come to an end," a senior oil ministry official said.

Srivastava added: "Elections in major states like Maharashtra and Jharkhand are also expected to boost transportation fuel demand. Additionally, the marriage season from November to January typically results in increased automobile sales and goods movement, further pushing up fuel demand."

India meets 85% of its crude oil demand through imports.

Crude oil futures moved higher Oct. 22 against a backdrop of continued uncertainty regarding the scope of an expected Israeli strike against Iran.

NYMEX November WTI settled $1.70 higher at $71.74/b, and ICE December Brent climbed $1.75 to $76.04/b. The uncertainty over the direction of the conflict in the Middle East is keeping prices elevated as the markets continue to worry about supply disruption in the region.

Commodity Insights expects Platts Dated Brent to average $81/b in 2024, but the market remains highly volatile at present. Barring a sustainable loss of Iranian oil exports with full-scale conflicts between Israel and Iran, Commodity Insights sees an easing of Platts Dated Brent to around $75/b in 2025.

Indian refinery officials and analysts said oil prices had not risen to a level where they would fear demand destruction.

"India's demand for oil products will rise despite prices going up in the next quarter. With festival season, energy demand will go up. The propensity to spend is quite high, and this, along with high economic growth, will lead to high demand for oil products," said Vibhuti Garg, director for South Asia at the Institute for Energy Economics and Financial Analysis.

"The Indian government is providing subsidies to a few sectors, like fertilizers, to absorb the price rise and therefore, this demand remains unaffected. For other sectors like petrol, consumers are indifferent, but for some sectors like power, demand for gas-based generation goes down when price increases," Garg added.

Indian oil minister Hardeep Singh Puri said than Indian oil supply situation was comfortable, but the government was watching the situation closely.

"If there's tension in one part of the world, then the cost of oil, and if you have to take a longer route, then the cost of freight, insurance rate cost -- all those will go up. But there is more than enough oil in the world, and prices should hopefully come down," Puri added.

Source - https://www.spglobal.com