Economy

Fuel use jumps as cooped-up drivers, shoppers get out

Debjit Chakraborty and Saket Sundria August 5 | Updated on August 05, 2021

FILE PHOTO   -  REUTERS

Industry players however fear that demand may fall if new Covid cases rise

Indian tourists are hitting the roads and heading to the hills to escape a sweltering summer after months of tight restrictions due to a deadly Covid-19 wave, although the respite may be brief with a new outbreak looming.

The urge to break free following months spent cooped up at home is driving up demand for fuel, which climbed above pre-virus levels last month. Pictures across local media show jammed highways and crowded markets in Himachal Pradesh, while restaurants are filling up again.

“Fuel demand is on the cusp of a V-shaped recovery as movement restrictions have been eased or lifted in several States,” said Senthil Kumaran, head of South Asia oil at industry consultant FGE. “So far, the release of pent-up demand has outweighed the impact of elevated retail prices.”

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The recovery from the devastating outbreak that overwhelmed the country’s health care system earlier this year is currently one of the few bright spots for fuel demand in Asia, as China and Indonesia grapple to contain flare-ups.

However, India is likely to see a rise in Covid-19 infections building into a new wave that may peak in October, according to researchers, and the exodus to the hills has prompted concerns in the highest levels of government.

Confirmed Covid-19 cases in India ticked higher over the seven days ended August 1, after steadily trending lower since mid-May, according to data compiled by Bloomberg. The delta variant has led to a spike in infections globally.

“Experts have been repeatedly warning that there could be a massive jump in corona infections due to carelessness, negligence and overcrowding,” Prime Minister Narendra Modi said during a meeting with Chief Ministers of northeastern States. “We should try to stop the overcrowded events.”

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Not even record high pump prices are discouraging citizens from escaping their homes and FGE is predicting motor fuel demand will continue rising the rest of the year. Consumption averaged 6,37,000 barrels a day in the second quarter and is expected to gain 12 per cent through July to September, according to the industry consultant. Diesel demand is still lagging, however.

The preference for cars rather than public transport to avoid being infected is contributing to a drag on diesel. While sales are still below pre-virus levels, the nation’s top fuel retailer sees them recovering by the Diwali festival in November. Diesel accounts for almost 40 per cent of total oil products demand.

FGE estimates diesel demand will edge higher this quarter to 1.6 million barrels a day and 1.77 million barrels a day the following three months. That compares with 1.5 million barrels a day in the second quarter.

Overall oil product demand is expected to be 4 million barrels a day in the December quarter, although the industry consultant cautioned that a new virus wave poses “downside risks” to its end-of-year forecast of around 2,00,000 to 3,00,000 barrels a day.

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“There is no let up in fuel demand,” said Shrikant Madhav Vaidya, chairman of the Indian Oil Corp. “If we don’t see another wave, God forbid, we should get back to 100 per cent capacity utilisation of refineries by Diwali and diesel consumption would also reach pre-Covid levels.”

Published on August 05, 2021

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