Will India's road fuel sales momentum continue into Q3?

The latest data from the Petroleum Planning & Analysis Cell (PPAC) showed that India's total product demand decreased by 1.1% y/y and remained flat m/m in May, primarily due to declines in LPG, naphtha, fuel oil, and other sales. However, the consumption of transportation fuels continues to grow, driven by activities related to the general elections. India's oil demand is expected to be around 5.27 Mbd in Q2 and around 5.0 Mbd in Q3, as heat waves (severe) and monsoon conditions lead to lower consumption despite the election-driven fuel demand. Despite election season fuelling a spike in road fuel sales, India's overall product demand dips in May (y/y)- is there near-term surge in product exports on the cards?

Indian total product demand reached 5.28 Mbd in May, from 5.27 Mbd in April, according to the latest data from the Petroleum Planning & Analysis Cell (PPAC). Gasoline consumption hit 936 kbd, and gasoil consumption reached 2.03 Mbd, marking the highest monthly consumption ever. This increase is attributed to heightened mobility during the ongoing general elections and unusually hot weather. Looking from a different angle, stripping out the election-driven sales, oil demand growth in May was far from rosy—down y/y and flat m/m. The same trend is expected in June.

India: Total product demand (kbd)

Source: PPAC, Kpler

Data from June 2024 onwards are Kpler estimates.

India: Transport fuel (Gasoline, Jet/kero, Gasoil) demand (kbd)

Source: PPAC, Kpler

Data from June 2024 onwards are Kpler estimates.

Road freight transportation demand remained strong (see chart below) due to the ongoing general elections, as indicated by the increased generation of e-way bills. In May, daily average toll transactions rose by 2% m/m and 4% y/y. Additionally, there was a 14.5% year-on-year increase in daily e-way bill generation in April, a trend expected to continue in May. This surge reflects rising economic activity, boosting transportation and logistics services, and increasing transport fuel demand.

India: High-frequency data  

Sources: Kpler, GST Network, Reserve Bank of India.

Overall, the latest data reaffirms India's position as a key driver of global demand growth and the leading market for refined oil products in 2024, with a 2.7% year-on-year increase in total product demand. We anticipate this momentum to persist into H2 2024, with Q3/Q4 demand closely watched and Indian demand projected to reach 5.2 Mbd (year average) in 2024. However, as we step into Q3 2024, we anticipate a monsoon-driven seasonal slowdown, with total demand expected to decrease from the current levels to around 5.0 Mbd, especially for transportation fuels and bitumen.

This could translate to lengthening balances East of Suez. On the supply side, the equation looks optimistic as Indian refiners are benefiting from favourable margins across the complexity spectrum. The Indian refining sector finds itself in a position where refining margins, supported by heightened imports of discounted Russian barrels and stable domestic fuel prices, provide a buffer for domestic refiners against the fluctuations of the global oil market. Refinery operations are anticipated to maintain strength, reaching approximately 5.2-5.3 Mbd in the near term, with only a few major shutdown-related activities expected in June and August/September (IIR) along with the startup of the new residue upgradation block in Vizag refinery. According to sources, India's 300 kbd Paradip refinery, is slated for a major turnaround in several units during June. The refinery is expected to operate at approximately 50-60% in June, a trend corroborated by the crude import data. As a result, June crude processing is expected to decrease to 5.2-5.3 Mbd.

Considering the overall Indian product balance, the seasonal-driven low demand in Q3, along with a reduction in election-driven mobility (elections concluded in May), is anticipated to result in further lengthening of distillate balances. This, coupled with the sustained strength in refinery operations, and now that the elections are over (allowing stocks to be freed up), is expected to maintain robust refined product exports. Judging by our S&D balances, India's middle distillate balance will be around 930 kbd in Q3, up by 200 kbd in Q2. Total refined product exports are expected to be around 1.3-1.4 Mbd compared to 1.2 Mbd year-to-date and 1.2 Mbd during the same period last year. Many of these cargoes are likely to remain in Asia, given the recent narrowing of the M2 EFS spread. As a result, this could exacerbate the already depressed refinery margins in Singapore.

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