India’s diesel consumption is expected to have continued its upward rally in December 2022 at 7.7-7.9 million tonnes (mt), aided by increasing activity in the agriculture, industrial and mining sectors.

Consumption of diesel stood at around 7.8 mt, or roughly 1.97 million barrels per day, in November 2022. This is the highest for the month in the last four years.

“Generally, industrial and farm activity picks up post monsoon months. In October-December 2022, particularly after mid-November, we are witnessing more activity in these sectors. Infrastructure spending is also picking up and mining, too, is rising, more so, for coal in anticipation of higher demand in summers. Diesel consumption will follow the previous trends and it is expected to stay in the 7.7-7.9 mt range,” a senior official with an oil marketing company (OMC) said.

Furthermore, last month, the marriage season was on, which again led to fuel consumption. To some extent, higher tourism during December, especially post December 15, also contributed to the higher demand, he added.

Economic activity

Market watchers said the economic activity is picking up further, particularly in the logistics and infra sectors. The rabi sowing season is in full swing with demand for diesel rising due to growing irrigation activity and tractor mobility. Mining is also on the rise, especially in coal and iron ore.

According to the Federation of Automobile Dealers Association’s (FADA) data, passenger vehicle sales rose 8.15 per cent y-o-y last month, while that of tractors and commercial vehicles grew 5.24 per cent and 10.67 per cent, respectively. The uptick in commercial vehicle sales indicates an emerging outlook towards robust economic growth.

The port traffic has also been on an upswing. For instance, the total traffic handled at major ports such as the Jawaharlal Nehru Port and Paradip port during December is already higher, led by growth in coal (coking, thermal and steam), other miscellaneous cargo and CPOL (crude, petroleum oil and lubricants).

Heightened road construction activity is also supporting diesel demand for trucks and earth movers as bitumen consumption is rising. During November 2022, it stood at 0.72 mt with a growth of 30.3 per cent y-o-y. Bitumen demand is also expected to grow in December. Besides, historically, road construction is the highest during the January-March period, which also indicates that bitumen demand will grow further.

Better margins

Higher sales of auto fuels also points to better earnings for OMCs. ICICI Securities, in a report last week, said the firms’ October-December earnings will be better than Q2 with marketing losses on retail fuels narrowing and steady gross refinery margins (GRMs).

Volatility in international crude and product prices is likely to benefit OMCs’ marketing earnings in Q3. Post record high losses of ₹17.4 per litre on petrol and ₹27.7 on diesel for the week ended June 24, 2022, margins for petrol are estimated at a positive ₹10 a litre for Q3 while diesel losses, too, have likely narrowed to ₹6.5/litre for the same quarter,” the brokerage added.

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