India's gasoline demand moved into negative territory in January, posting its lowest growth in four months as the cash shortage following the government's move last year to demonetize 80% of the country's legal currency kept a lid on consumption of transport fuels and sales of two-wheelers.
While gasoline consumption was a shade lower year on year at 1.81 million mt in January, compared with 1.82 million mt in January 2016, it fell more than 8% from December's 1.97 million mt. But market participants said they expected demand to bounce back in the coming months.
"Cash payments continue to dominate the motorcycle segment. We believe that the effect of demonetization should ease off in February in the road sector, leading to a rebound in gasoline consumption from March onwards," said Sri Paravaikkarasu, Head of Oil, East of Suez, at Facts Global Energy.
FGE added that while sales of commercial and passenger vehicles had recovered partially, motorcycle sales fell 6.1% year on year in January.
Since India deregulated diesel prices in October 2014, gasoline demand continues to grow sharply and analysts expect it to show double-digit growth again in 2017.
In 2016, India's gasoline demand grew more than 12% year on year to 23.66 million mt, according to data from the Petroleum Planning and Analysis Cell.
The country's industrial sector also felt the ripple effects of the cash shortage.
Its appetite for diesel also took a backseat, falling about 7.8% year on year to 5.8 million mt in January. It was also 11.6% lower from December 2016. "Both retail fuels had seen consumption grow in the double digits in November 2016, driven by acceptance of old denomination currency at retail outlets. The inventory impact may have hurt January 2017 numbers," Credit Suisse said in a research note, referring to gasoline and diesel.
India announced the scrapping of Rupees 1,000 and 500 notes on November 8 with immediate effect, but it allowed them to be used for a slightly longer period at fuel stations. This led to a rush to fill up fuel tanks.
With demand for gasoline and diesel -- which together account for 50% of overall oil products demand -- posting negative growth in January, India's oil products demand in the month fell 4.5% year on year to 15.52 million mt, or 3.9 million b/d, PPAC data showed.
LPG SHINES BRIGHT
As the government's drive to promote clean fuels continued, LPG posted the sharpest demand growth in January, rising 16.4% year on year to 1.98 million mt. January LPG consumption was also 2.4% higher from December.
"LPG demand will continue to grow robustly at 11% and 9.8% year on year in Q2 and Q3 2017, respectively, amid constant push by the government to meet its overall target of providing 50 million new LPG connections during the April 2017-March 2019 period," FGE added.
India's domestic LPG demand grew more than 11% year on year in 2016 to 21.17 million mt, PPAC data showed.
As state-owned oil marketing firms continued to push up kerosene prices in an effort to discourage consumption, demand for oil products fell close to 35% year on year to 366,000 mt in January.
India's jet fuel demand rose 18% in January to 627,000 mt. Credit Suisse said that air traffic in India was expected to continue to increase at an annual rate of 20%, lending support to demand for jet fuel.
The country's appetite for fuel oil fell about 10.7% year on year in January to 561,000 mt. It was about 5% lower from December.
OIL TRADE OUTLOOK
India imported 17.45 million mt, or an average 4.13 million b/d, of crude oil in January, down 3.8% year on year, PPAC data showed. Imports in January were 3.1% lower from December.
Analysts attributed the fall in crude oil imports for the second month in a row to easing of domestic demand after a rush at retail pumps in November following the demonetization.
But overall crude oil imports are expected to rise in fiscal 2016-2017 (April-March) as the newly commissioned 15 million mt/year (300,000 b/d) Paradip refinery on the east coast ramped up operations to full capacity in October, and the west coast Kochi refinery completed an expansion to 15.5 million mt/year in May, from 9.5 million mt/year earlier.
LPG imports in January rose 12.2% year on year to 901,000 mt but were 19.3% lower from December. Naphtha imports fell 17.4% year on year to 190,000 mt, which was also down 13.6% from December.
India's overall exports of refined oil products fell 7.6% year on year to 5.19 million mt, or 1.31 million b/d, in January, with diesel exports falling 23.2% year on year to 1.8 million mt and gasoline exports down 31% to 1.03 million mt.
Jet fuel exports fell 22.5% year on year and 23.5% from December to 537,000 mt in January as oil companies raised their selling price in January.
Naphtha exports rose 38% year on year to 802,000 mt in January but fell 3.8% from December levels.
