India’s oil demand stays weak as its economy falters amid virus lockdown

Bloomberg

It’s going to take months for oil demand in the world’s third biggest market to get back to pre-virus levels as India faces its deepest recession ever in the wake of its near two-month lockdown.
Once the engine of global oil demand growth, India’s fuel consumption collapsed by as much as 70% at one stage last month as it embarked on one of the world’s most stringent nationwide quarantines. As the lockdown eases, it’s now running at about 40% below last year’s levels and could take until the end of 2020 to get close to full recovery, according to executives at the country’s state-owned fuel retailers.
The stuttering rebound in India’s oil use stands in contrast to China’s, where demand is all but back at levels last seen before Beijing imposed a lockdown to fight the coronavirus outbreak. That’ll temper some optimism around a faster-than-expected tightening of the oil market that’s helped push prices back to $35 a barrel.
“Demand is reaching 60% to 70% of normal, but it will take some time to get to pre-Covid sales,” said Mukesh Kumar Surana, chairman of Hindustan Petroleum Corp. “Over a period of two to three months, we should get back to 80% of normal sales. Beyond that, it will
be slow.”
The country consumed about 4.6 million barrels a day in May last year, which means demand probably stands at about 2.8 million barrels a day now, according to data compiled by Bloomberg, based on estimates by the executives. Gasoline demand is still about 47% below the same time last year, while diesel consumption is about 35% lower, they said. Jet fuel was still a massive 85% weaker, they said.
Vehicles used to queue up outside Ajay Bansal’s gas station in Delhi’s bustling heart all day. But since Prime Minister Narendra Modi imposed the world’s most disruptive stay-at-home order on March 25, he says his customers more or less vanished.
“Daily sales plummeted to 10% after the lockdown began,” said Bansal, who’s also the president of All India Petroleum Dealers Association. “Vehicles have now started trickling in since easing of some restrictions, but normalisation will take a long time.” The lockdown of more than 1.3 billion people has taken a massive toll on India’s economy. Goldman Sachs is forecasting the deepest recession ever, with the economy shrinking by an annualised 45% in the second quarter before rebounding in the third quarter.
India extended its nationwide lockdown until May 31 but has eased restrictions in certain sectors to boost economic activity. Inter-state travel will be allowed with permits, while public transport, along with malls, cinemas, schools, gymnasium and tourist spots will remain closed.
R Ramachandran, director of refineries at India’s second biggest fuel retailer Bharat Petroleum Corp, sees fuel demand reaching about 80% to 85% of normal in the next three to four months. He’s reluctant to make predictions beyond that as the full extent of the lockdown’s economic impact is yet to be seen. “Only time will tell and we will need to wait,” he said.
The oil market is frantically trying to gauge if the world’s major demand centres are replicating the recovery in Chinese consumption, which has helped power a remarkable rebound in crude prices after the catastrophic drop below zero last month. Brent futures are back above $35 a barrel and physical differentials surging as the world’s biggest producers stick to their historic pledge to curtail supplies.
While it’s a slow process in India, there are some signs of recovery. Sales of diesel, mainly used in transport and industries and accounting for 40% of India’s total oil demand, jumped 75% in the first half of May compared with the same period in April.