India’s Oil Demand Spared 2020 Collapse Despite Covid Crisis
(Bloomberg) -- The brutal Covid-19 wave sweeping across India tallying grim daily records has surpassed the severity of the 2020 outbreak. On the surface, the near-term outlook looks bleak for oil refiners, but a closer look reveals marked differences between this year’s situation and the last.
While a raft of bearish calls predicting even worse demand this month has emerged after fuel consumption plunged in April, here are some reasons why India’s oil refiners and fuel marketers are better off this year, despite the virus tearing through one of the world’s most populous countries.
1. The Big Lockdown
A snap nationwide lockdown implemented early last year to curb the spread of the initial wave crippled the economy, driving oil demand to the lowest in more than a decade and saddling refiners with a glut of fuels. Indian Prime Minister Narendra Modi has this time resisted calls for another broad shutdown, instead leaving it up to the states to impose a patchy framework of restrictions. That has allowed for some mobility and economic activity, helping refiners avoid deep and costly cuts to crude processing.
“Indian refiners are in a better position than last year, but still not out of the woods,” said Arun Kumar Singh, the director for marketing and refining at the nation’s second biggest fuel retailer Bharat Petroleum Corp.
2. Ample Storage
Refiners were forced to slash crude processing in 2020 after the lockdown decimated fuel demand. The volume of crude oil and fuels in storage rapidly swelled, prompting companies to scramble for every available option to house surplus supplies including inland depots, tanks at ports and ships at sea.
Some such as Mangalore Refinery and Petrochemicals Ltd. have had to trim rates during the current wave, but this time there is abundant storage capacity after inventories were whittled down. Fuel exports surged to an 11-month high in March as a global demand recovery gathered pace over the first quarter, helping to drain bloated domestic stockpiles.
3. Pockets of Demand
The reopening of parts of Europe, a key export market for Indian fuels, has provided a potential outlet for excess supplies. Shipments of products including gasoline and diesel are expected to be at 1 million barrels a day during the first week of May, on par with levels seen in January and February, but Vortexa forecasts an increase “could be imminent” if domestic demand falls further.
Road fuel sales in the U.K. for the 7-day period through May 1 hit its highest level since the pandemic began, according to government data. The popularity of cars has been making a comeback across the world as people skip trains and buses, fueling a demand surge for oil and metals in countries that could afford the cost of ownership.
In the U.S., gasoline prices surged to a three-year high in intra-day trading on Monday after a cyberattack took out the nation’s biggest pipeline operator. Even before Colonial Pipeline Co.’s system was forced offline, motor fuel had rebounded strongly this year.
4. Markets Move Forward
The dire situation engulfing India has forced change from others outside of the country, with Saudi Arabia cutting the official selling prices of its crude to Asian customers for June due to the outbreak. Still, broader oil markets have barely blinked, aided by the recovery in regions such as the U.S. and China.
Global benchmark Brent crude is flirting with $70 a barrel, while Goldman Sachs Group Inc. said late last month that commodity markets have looked through a sharp rise in Covid-19 cases in India.
Still, a full lockdown remains the big wildcard. The rapidly spreading virus has infected almost 23 million people as of May 11 and could spur more spirited calls for a full shutdown, which would dramatically shake up the outlook for energy consumption and weigh heavily on the nascent recovery.
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