Monsoon rains, European demand set to keep India's gasoil exports robust

India's diesel exports in May posted a growth of 15.2% compared with the previous month and are set to rise further, as the arrival of monsoon rains is expected to slow domestic construction activity at a time when refiners are reaping rich returns on the back of lucrative refining margins, trade sources and analysts said.

In addition, robust demand for Indian diesel cargoes overseas to fill the void in countries that have shunned Russian cargoes is expected to keep India's overall oil product exports strong over the next two to three months, they added.

"The arrival of monsoon is expected to lead to a dip in domestic gasoil demand, especially from the construction sector and trucking, and we expect that there will be an increase in diesel exports out of India in the third quarter versus the second quarter," said Lim Jit Yang, advisor for Asia-Pacific oil markets at Platts Analytics of S&P Global Commodity Insights.

India's monsoon season runs from June to September.

According to the Petroleum Planning and Analysis Cell, India's diesel exports rose 3.8% year on year to 3.1 million mt, or 733,000 b/d in May, from 2.95 million mt in the same period a year earlier. May gasoil exports were up 15.2% from 2.69 million mt shipped out in April.

According to Platts Analytics, India's diesel exports rose by nearly 15% year on year to an average of nearly 700,000 b/d over the first five months of this year, with substantial volumes heading to Europe in recent months.

"Diesel exports from India rose in May sharply to fill the vacuum of Russian supplies created in Europe and elsewhere," a New Delhi-based energy source said.

Private refiners push for exports

An oil ministry official said that private refiners in India have been processing attractively priced Russian crude for higher refined product exports, mainly to Europe.

"The trend of higher exports of refined oil products from India to Europe by private refiners would continue in the next couple of months. The option of higher exports of refined oil products, particularly to Europe, is more attractive to Indian private refiners in comparison to selling the cargoes in the domestic markets," the official added.

India's overall oil product exports fell 1% year on year in May to 5.68 million mt, from 5.74 million mt in the same period a year earlier. However, May oil product exports were up 5.9% from 5.36 million mt shipped out in April, PPAC data showed.

Over the January-May period, India's oil products exports rose by 13.9% to 27.7 million mt, from 24.32 million mt in the same period a year earlier, according to PPAC data.

"Indian refineries have been running hard over the past few months to produce sufficient fuel to meet improving domestic demand, and at the same time to capture lucrative export opportunities for distillates as product cracks surged to a record high," Lim of Platts Analytics added.

India's average run rate for all refinery categories rose to 110% in May from 105% in April, the latest survey by the oil ministry showed, as refiners sought to gain from higher margins and expectations of higher fuel demand in the summer season.

Average May runs were also above the 93% rate of May 2021, as higher crude prices ensured greater returns from cracks in Asia's third-largest economy. State-owned refineries recorded a 113% run rate in May from 87% in May 2021 and 110% in April. Private refineries recorded a 104% average run rate in May, compared with 102% in May last year and 96% in April.

High prices may dent local demand

India's gasoil output rose 3.06% on month to 10.12 million mt, or 2.43 million b/d, in May, PPAC data showed, following an increase in refineries' run rate and strong gasoil cracks that continued to encourage the production of the distillate. On a year-on-year basis, gasoil production in May was up 21.9%.

In May, the physical FOB Singapore gasoil cracks against front-month cash Dubai averaged $45.31/b, largely steady from an average of $46.02/b over April, S&P Global data showed, reflecting the sustained attractiveness of producing gasoil for export purposes.

Analysts said India's exports of oil products would continue to remain robust in the foreseeable future, as high retail prices are threatening to dent domestic demand.

"We expect exports to be on the higher side on expectations that global crude prices will remain high," a Mumbai-based energy analyst said. "Refiners will look to ease the domestic inventory pressure by selling in overseas markets."