India's Q1 oil demand growth momentum seen spilling over to Q2 as elections loom

India's oil products demand rose 4.3% on the year to 60.89 million mt (5.3 million b/d) in Q1, with gasoline, diesel, and jet fuel registering robust gains -- a trend likely to continue in Q2, as the country draws closer to its federal elections starting late-April.

Although high crude oil prices have raised concerns about the possibility of some demand destruction, government officials have said that oil marketing companies would take appropriate measures to cushion the impact for retail consumers if the trend persists over a longer period of time.

"Intensifying election activity will give another boost to energy demand in Q2 and spur the pick-up in the oil import bill that has been underway since mid-2023," said Priyanka Kishore, director and principal economist at Asia Decoded, a Singapore-based research consultancy.

Another Mumbai-based oil analyst held a similar view: "Oil demand in India is expected to rise in the April-June quarter due to the general elections that are scheduled to be held in a phased manner over April and May."

Based on an analysis of market fundamentals and sentiment along with other factors, S&P Global Commodity Insights forecasts Platts Dated Brent to average $85/b in 2024 in its base-case forecast.

Elections, weather impact

According to PPAC data, gasoline demand rose 8.4% on the year to 9.45 million mt in the January-March quarter, according to data from the Petroleum Planning and Analysis Cell of the oil ministry.

While gasoil demand in Q1 rose 4.2% on the year to 22.9 million mt, jet fuel consumption was up 7% on the year to 2.17 million mt, indicating that transport demand -- both road and air travel -- is now on a sustained recovery after a prolonged period of uneven growth during the pandemic.

Government officials have said that there could be a surge in demand for transport fuels in the April-June quarter due to the election campaign.

In addition, diesel demand could receive support from the El Nino effect, in case the weather phenomenon prevails beyond May, causing a delay in the arrival of the southwest monsoon rains over the southern coast in 2024, a PPAC official said.

According to S&P Global estimates, gasoil demand in Q2 will likely see an increase of 75,000 b/d on the back of harvest activity picking up, along with general elections. For the whole of 2024, gasoil is expected to be the largest contributor to oil demand growth.

Overall, India's oil demand is expected to grow by 206,000 b/d in 2024. Gasoil and gasoline will be the highest contributors, together accounting for 65% of the growth, S&P Global estimates showed.

Growth in March

India's oil products demand rose 6.8% on the year to 21.09 million mt (5.3 million b/d) in March, driven by higher auto fuel sales in Asia's third-largest economy.

India's gasoline demand in March rose 9.96% on the month, and rose 6.95% on the year, to 3.32 million mt in March, PPAC data showed, amid higher auto fuel sales.

The Platts-assessed FOB Singapore 92 RON gasoline averaged $97.14/b in March, up $1.55/b from February, S&P Global data showed.

India's naphtha consumption edged down 0.64% on the month, and 5.23% on the year, to 1.191 million mt in March, the PPAC data showed. This was the third consecutive monthly fall since the three-year high of 1.326 million mt recorded in December 2023, the data showed.

The drop in demand came despite higher gasoline consumption and a widening reforming spread. India's refiners mainly use naphtha as a blendstock for gasoline production and excess naphtha is typically exported for use as petrochemical feedstock.

The front-month Singapore reforming spread, the spread between Singapore 92 RON gasoline and Singapore naphtha swaps, averaged $23.33/b in March, down from $24.71/b in February, S&P Global data showed. The spread has since widened to $28.01/b on April 3.

India's oil products demand rose 4.7% on the year to 230 million mt, or 4.9 million b/d, in 2023, the PPAC data showed, reflecting gains from lower crude prices after the oil market discounted the impact of the Russia-Ukraine war on global supplies.