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  • Omicron variant adds risks but unlikely to derail India’s 2022 oil demand recovery

    Published on December 14, 2021

    India’s oil demand down by 3.8% on the year in November, but expected to pick up in December

    • India’s oil demand is expected to rise by 320,000 b/d in 2022, though with downside risks because of omicron and other potential variants
    • S&P Global Platts Analytics expects India’s net exports of key products to ease in 2022

    India’s November oil product demand eased month on month, as fuel consumption tapered after the festival season, with lower trucking activity. The country’s November oil product demand was down year on year by 186,000 b/d, or 3.8%, dragged lower by gasoil, which was down by 135,000 b/d, according to the latest data from the Petroleum Planning and Analysis Cell. In fact, oil demand declined year on year for all other key products except kero/jet, which rose by 26,000 b/d. LPG, naphtha, gasoline and fuel oil were down by 4,000 b/d, 61,000 b/d, 6,000 b/d and 3,000 b/d, respectively. Other minor products also decreased by 3,000 b/d.

    Weaker vehicle sales and high fuel prices played a part in the weaker oil demand. India’s retail sales of passenger vehicles fell year on year by 19% in November, as chip shortage continues to be a headwind for auto manufacturing. Fuel prices remained high even as the central government had reduced excise duties on gasoline and diesel by Rupee 5 ($0.067) and Rupee 10 per liter, respectively, Nov. 4, the eve of Diwali. This was followed by most of the states cutting the state levied value added tax in different proportions, making both petrol and diesel further cheaper. Rajasthan and Delhi also followed suit to cut VAT on gasoline and diesel. But some of the states, including Maharashtra, Tamil Nadu, West Bengal, Telangana and Andhra Pradesh, have still not reduced the VAT on gasoline and diesel.

    India’s economy fared well in November with GST collection at 1.32 trillion, up month on month by 2% and the second highest figure since the introduction of GST. In fact, growth in manufacturing activities continued to gain momentum, with its PMI remaining in the expansion territory for the fifth straight month and recorded at 57.6 in November, the highest since January. Furthermore, the daily average number of highway toll transactions, an indicator of highway traffic, was up month on month in November, despite a slight decline in trucking activity due to Diwali, with the trend rising in early December.

    India’s mobility index rose to 226% of pre-COVID levels in early December, from 217% in November. As per AirNav Radar Box, India’s domestic flights remained steady in early December, down by 8% from pre-crisis norms and improving from below 9% in November. International travel was down by 39% in early December, improving by 4% from November. India decided to not close its borders completely. It has made the pre-arrival and post-arrival RT-PCR test compulsory with seven days of mandatory home quarantine with the “at-risk” nations, which among others, include Europe and South Africa. Some of the states have also introduced some additional restrictions on international travelers but there are no harsh restrictions for domestic travel.

    Overall, Platts Analytics expects India’s December oil demand to grow 185,000 b/d year on year, taking the full-year growth to 260,000 b/d (5.6%), before posting a growth of 320,000 b/d (6.7%) in 2022, as its economy continues to rebound, with a risk of downward adjustment due to the emergence of omicron and other potential variants.

    The omicron variant has started to spread in India, as more than 20 cases have already been reported and many clusters are being examined, which may further lead to an increase in numbers. The authorities have confirmed that there has been no omicron induced death so far. India had administered 1.305 billion doses of COVID-19 vaccine as of Dec. 9. About 58% of its population has received at least one dose of the vaccine, and nearly 36% of its population has received both doses to be fully vaccinated. For the last 30 day, India’s daily vaccination rate averaged 7.03 million doses. The central government has set an ambitious target of vaccinating 100% of its vaccine eligible population with at least the first dose by Dec. 31 under the “Har Ghar Dastak” program, which means door to door vaccine distribution campaign.

    The impact of omicron, if it spreads wildly, will most likely be felt in the first half of 2022, as state governments tighten measures to contain the spread of the new variant. However, any lockdowns are likely to be localized and more targeted, and demand impact is likely to be more modest than before.

    In response to improving demand, India’s October crude runs rose to a seven-month high of 5 million b/d, up on the year by 617,000 b/d. We expect India’s refinery runs to average 5.2 million b/d over November and December. Currently, we expect India’s refinery runs to rise by 370,000 b/d in 2022 on stronger domestic demand, as economic activity picks up, coupled with rising export demand. Obviously, with the emergence of new omicron variant, there is a risk of downward adjustment to our outlook if oil demand were to falter. Overall, India’s net exports of the three key products, gasoline, kero/jet, and gasoil, are expected to average 965,000 b/d in 2021, rising from 910,000 b/d in 2020, but will likely be lower at 890,000 b/d in 2022, as domestic demand continues to grow.

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