Explained: Why India's fuel demand is rising?
2 min read . Updated: 10 Mar 2023, 09:36 AM IST
PremiumRefiners in India, which rarely used to buy Russian oil because of costly logistics, have emerged as Russia's key oil client, snapping up discounted crude shunned by Western nations since the invasion of Ukraine last February.
Fuel demand in India hit its highest level in at least 24 years in February, according to data showed on Thursday. This comes as the industrial activity in Asia's third-largest economy is boosted by cheap Russian oil.
Viktor Katona, lead crude analyst at Kpler said that the strength highlights a combination of profitable refining from record Russian crude imports in February, total utilization for primary distillation across India, and still-robust domestic consumption.
The fuel consumption rose by more than 5% to 4.82 million barrels pre-day (18.5 million tonnes) in February, its 15th consecutive year-on-year rise. The demand was the highest recorded in data compiled by the Indian Oil Ministry's Petroleum Planning and Analysis Cell (PPAC) from 1998, Reuters reported.
Refiners in India, which rarely used to buy Russian oil because of costly logistics, have emerged as Russia's key oil client, snapping up discounted crude shunned by Western nations since the invasion of Ukraine last February.
Indian refiners have begun paying for most of their Russian oil purchased via Dubai-based traders in United Arab Emirates dirhams instead of U.S. dollars, four sources with knowledge of the matter said.
Traders are concerned they may not be able to continue to settle trades in dollars, especially if the price of Russian crude rises above a cap imposed by the Group of Seven nations and Australia in December. That has led traders to seek alternative methods of payment, which could also aid Russia's efforts to de-dollarize its economy in response to the Western sanctions.
The G7 price cap prohibits any Western company, such as the insurance and shipping service providers that underpin much of global trade, from involvement in trading Russian crude if the purchase price is above $60 a barrel at the loading point in Russia. That remains the case even if the oil is bound for countries such as China and India which do not recognize the cap.
Indian refiners typically buy Russian crude from traders at a price that includes delivery to India.
Geoffrey R Pyatt, US Assistant Secretary of State for Energy earlier said the experts assess that India right now is enjoying a discount of about USD 15 a barrel in the price that it is paying for its imports of Russian crude.
“So India, by acting in its own interest, by driving a hard bargain to get the lowest price possible, is furthering the policy of our G7 coalition, our G7 plus partners in seeking to reduce Russian revenues," he said.
India expects fuel demand to grow 4.7% next fiscal year
India's fuel demand is likely to grow 4.7% in the next fiscal year beginning on April 1, initial government estimates showed. The estimates were released on the website of the Petroleum Planning and Analysis Cell (PPAC), a unit of the federal oil ministry.
Fuel consumption in 2023-24, a proxy for oil demand, could rise to 233.8 million tonnes from the revised estimate of 222.9 million tonnes for the current fiscal year ending in March, according to government forecasts.
Domestic demand for gasoline, used mainly in passenger vehicles, is expected to rise by 7.1% to 37.8 million tonnes, while gas oil consumption was seen growing by about 4.2% to 90.6 million tonnes, the data showed.
Consumption of aviation fuel would likely increase by 14% to 8.6 million tonnes, compared with the revised estimate of 7.4 million tonnes for the year ending March 2023.
(With inputs from agencies)