Oil Demand Slumps in India as Third-Biggest Buyer Shuts Down



Oil Demand Slumps in India as Third-Biggest Buyer Shuts Down
Oil demand in the world's third-biggest consumer has collapsed by 70 percent as India endures the planet's largest national lockdown, according to refiners.

(Bloomberg) -- Oil demand in the world’s third-biggest consumer has collapsed by as much as 70% as India endures the planet’s largest national lockdown, according to officials at the country’s refiners.

The estimate for the current demand loss is a stark reminder of the challenge facing oil producers as they haggle over a deal to cut supply and prop up the global energy industry. Consumption for the entire month could average about 50% below last year’s levels but that’s based on India’s three-week lockdown ending April 15 as planned, according to the officials.

The reduction equates to a staggering 3.1 million barrels a day of lost oil demand, according to data compiled by Bloomberg. To put that in perspective, it means the decline in India alone would eat away a third of the 10 million barrel-a-day supply cut that President Donald Trump last week touted as being under consideration by the world’s biggest crude producers in talks due to culminate this week.

“This is an unprecedented situation, I have neither seen nor heard anything like this in my entire life,” said R.S. Sharma, former chairman of Oil & Natural Gas Corp., India’s biggest producer, which also has two refining units. “There’s lot of turmoil and things are going to worsen,” said Sharma, an oil industry veteran who helmed ONGC during the 2008 financial crisis.

India’s March 25 decision to impose a three-week lockdown on its 1.3 billion people was the most far-reaching measure undertaken by any government to curb the spread of coronavirus. It has helped plunge global energy markets deeper into turmoil just as hopes had started to surface that resurgent Chinese demand could offer some support as the world’s biggest consumer emerged from its own lockdown.

The scale of the demand loss also puts into perspective India’s plans to add to its strategic reserves, a sign of its support for the global measures to help stabilize the oil market. The country has only 15 million barrels of spare capacity in its strategic reserves.

Spokespeople for the oil ministry and state refiners Bharat Petroleum Corp. and Hindustan Petroleum Corp. didn’t respond to requests for comment.

“Our demand is running at 30% to 40% of normal, varying from product to product,” said Sanjiv Singh, chairman of the biggest state refiner, Indian Oil Corp. “We will get a boost when things start opening up, but probably not to the pre-Covid level. That may still take some time.”

For now, India’s streets remain deserted, factories shut and cargo movement has pretty much ground to a halt with transportation of goods by road collapsing to less than 10% of normal levels.

The shutdown is catastrophic for fuel demand. The three state refiners that account for more than 90% of the nation’s fuel sales are predicting a decline of about 60% in gasoline consumption in April compared with last year and a 40% slump in diesel use, according to the officials, who asked not to be identified because the information is confidential. They’re banking on an improvement in demand in the second half of the month as the lockdown ends.

India consumed 4.48 million barrels a day of oil in April 2019, including about 690,000 barrels a day of gasoline and 1.8 million barrels of diesel, according to government data.

Deal Hopes

Optimism that producers are inching closer to a global deal has helped prop up oil prices that collapsed more than 60% since the beginning of the year. The U.S. on Tuesday said its production will drop dramatically this year, helping pave the way for Saudi Arabia and Russia to coordinate output cuts at Thursday’s virtual OPEC+ meeting. On Friday, they’ll seek cooperation from other nations in a Group of 20 conference.

However, even a cut by 10 million barrels a day may only dent the supply glut caused by the lockdown of billions of people around the world to slow the spread of the virus, which is estimated to have reduced demand by as much as 35 million barrels a day. The destruction of India’s oil consumption represents a significant share of that.

“India’s oil demand is falling off a cliff, as the whole nation has come to a standstill,” said Senthil Kumaran, an oil markets consultant at Facts Global Energy. “Demand for key oil products should shrink by 53% year-on-year to just 1.8 million barrels a day in April.”


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