India's Oil Demand Surges Despite Monsoon Challenges

In August 2023, India experienced a significant increase in oil product demand, driven by factors like below-average rainfall and uneven distribution. The demand surged by 118,000 barrels per day (bpd) on a month-on-month (MoM) basis, leading to strong factory activity and increased mobility.

Key Drivers

• Monsoon-Impacted Diesel Sales: The influence of the monsoon season on diesel sales in India is substantial. Weaker-than-expected monsoon rains can lead to reduced soil moisture, affecting agricultural activities like sowing. As a significant portion of Indian farmland lacks irrigation, the monsoon’s performance directly impacts crop growth and the demand for diesel machinery used for agricultural activities. This, in turn, increases the diesel demand in India.
• Crude Oil Production Growth: Despite monsoon challenges, India saw a growth of 2.1% in crude oil production in July 2023 compared to 2022. The Petroleum Planning & Analysis Cell (PPAC) reported a total production of 2.50 million tons of crude oil. This growth was attributed to contributions from the Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL), and private-sector producers.

Current Scenario

• Diesel: Demand witnessed a 3% decrease monthly, but it remained 5% higher than last year and 9% above August 2019 figures. The mobility sector continued to drive diesel demand and sales of diesel machinery used in water harvesting increased.
• Petrol: Demand surged to 851,000 bpd in August 2023, partly due to lower rainfall and increased use of in-car air conditioning. Private fuel retailers also saw a 2.5% month-on-month increase in market share. India’s petrol demand rebounded to levels above those seen before the COVID-19 pandemic, and it is expected to grow by approximately 23% compared to 2019 levels by 2023.

Market Outlook

• India’s oil demand is projected to grow by 239,000 bpd in 2023. While this is a downward revision of 3,000 bpd from previous estimates, it reflects the resilience of India’s oil sector. Middle distillates, gasoil, and kerosene/jet fuel are expected to contribute significantly to this growth, with solid economic growth and increased focus on industrial and construction activities providing support.
• Overall, the July-September 2023 quarter is expected to experience a seasonal dip due to the monsoon, but demand is anticipated to rebound in the October-December 2023 quarter with the onset of festivities. India’s oil demand in 2023 is projected to be 7% higher than 2019 levels and is expected to rise by approximately 11% in 2024.

OFB’s Insight

India’s oil sector demonstrates resilience and adaptability in the face of challenging factors like monsoon variations. Despite temporary setbacks, the country’s oil demand is on an upward trajectory, supported by economic growth and changing consumption patterns.