Macro Economy

Covid-19 impact: Next quarter critical for oil industry

Twesh Mishra, Richa Mishra New Delhi | Updated on March 19, 2020

Hit by a double whammy of falling prices and demand, industry may seek a stimulus

In normal circumstances, a drop in retail fuel prices would not see fall in consumption, but this March has been different. Clearly, the impact of Coronavirus (Covid-19) is evident. In fact, oil companies fear that the next quarter will be even worse.

“On one hand oil prices have sunk and on the other demand has slipped, clearly bad news for the sector,” said an industry observer. The fuel retailers have seen almost 10 per cent drop in consumption for the first fortnight of March against the same period last year.

According to an industry source, “When volumes are down even the government is not getting revenues. If this alarming situation continues, we will soon have to work on a stimulus for oil refiners. Meanwhile, the Centre may opt for another increase, not in duty, but on the cess amount to make use of low oil prices and earn some revenues.”

The Central levies on petrol and diesel were hiked by ₹3 a litre from March 14. After this hike, the central excise duty on petrol is at ₹22.98 a litre while the central duties on diesel is at ₹18.83 a litre. Special excise duty on petrol was hiked by ₹2 a litre to ₹8 per litre, the duty on diesel was hiked to ₹4 a litre after this hike. The Road and Infrastructure cess was hiked by ₹1 per litre on both fuels to ₹10 a litre.

Global oil demand is expected to decline in 2020, as the impact of the Covid-19 spreads around the world, constricting travel and broader economic activity, according to the International Energy Agency’s (IEA) latest oil market forecast.

IEA forecast

The IEA now sees global oil demand at 99.9 million barrels a day in 2020, a decline of around 90,000 barrels a day from 2019. This is a sharp downgrade from the IEA’s forecast in February, which predicted global oil demand would grow by 825,000 barrels a day in 2020.

“The demand for fuel is expected to grow at 2-3 per cent during fiscal 2020-21 if the Covid-19 situation improves. In India, fuel is primarily used for surface transport and till now we have seen a dip in air transport. Road transport demand has remained largely robust and we expect it to remain so if the situation normalises,” Miren Lodha - Director - Crisil Ltd.

According to a senior executive from an oil company, sales of all petroleum products have been hit. The overall demand of liquid fuels has gone down by 10-11 per cent for the first fortnight of March 2020.

Restrictions on movement coupled with travel advisories, have led to a 10-per-cent drop in sales of aviation turbine fuel, bunker fuel sales are also down approximately 10 per cent, the executive said. On Thursday, the Railways cancelled 168 trains citing low occupancy. These trains have been halted from March 20 to March 31 in an attempt to check the spread of the virus. According to data shared by the Ministry of Civil Aviation, as on last Thursday, over 90 domestic flights were cancelled.

India’s total petroleum product demand stood at 36.76 million tonne in January-February 2020. This is higher than the 35.96 mt demand in January-February 2019, according to data compiled by the Petroleum Planning and Analysis Cell.

Auto fuel demand during these months also reported a rise at 19.06 mt in January-February 2020(18.44 mt in January-February 2019). It stood at 10.04 mt in March 2019.

Published on March 19, 2020

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