Diesel Demand Drop Forcing India Refiners to Import Gasoline
Lack of demand for diesel is forcing refiners to operate below capacity, and in the process cut output of other essential fuels.
(Bloomberg) -- Indian refiners, designed to maximize diesel output, are being forced to import gasoline to cover demand as plants continue to run below capacity.
The companies are facing a peculiar situation. For years, they have been pumping out diesel used by trucks and industries to keep the pace of economic growth. Now, the onslaught of the coronavirus has turned the tables, and the lack of demand is forcing refiners to operate their plants below capacity, and in the process cut output of other essential fuels.
Complicating the situation is that gasoline sales are back at pre-virus levels, led by greater use of personal vehicles to avoid the risk of getting infected on public transport. The same reason, however, is contributing to diesel use staying about 8% lower. Also impacting consumption are a slower pickup in industrial activities, lower seasonal demand and higher retail prices.
Bharat Petroleum Corp. plans to import a cargo of gasoline every month until there’s enough diesel demand to support its refineries to run at higher capacity, Marketing Director Arun Kumar Singh said on Monday. Diesel makes up about 40%-45% of the state company’s total fuel output.
“The moment diesel demand comes up, we will be processing more crude,” Singh said on a video conference. “The more crude we process, more gasoline will come and the need to import will not be there.”
Often viewed as a barometer of economic health, the world’s refiners are struggling with the worst profitability margins in years for diesel. The fact that consumption in India continues to be weak indicates the country, seen as the fastest-growing source of oil demand before Covid-19 struck, may not be able to support the market.
Bharat Petroleum’s two fully owned refineries operated at about three-quarters of capacity last month, almost the same level as the average for the country, according to oil ministry data. It’s facing a gasoline shortfall of about 30,000 tons a month, all of which will need to be imported, according to Singh.
The company and Indian Oil Corp., the nation’s biggest refiner, this month sought prompt supplies of gasoline for delivery in October, according to traders who received those tenders. Bharat Petroleum bought a cargo of 20,000 tons of gasoline from Shell for delivery to western India.
“No sooner that diesel improves, and diesel goes up another 5%, our need for gasoline import won’t be there,” Singh said. “It is a very temporary phase.”
In the long term, Bharat Petroleum is building a new gasoline unit at its Kochi refinery in southern India to meet the future requirements of the transport fuel. The plant will be operational in March, he said.
©2020 Bloomberg L.P.