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Demonetisation impact: India's oil demand shrinks compared to China in 2017

A report says India's expected oil demand growth was between 6-7% versus China's 2% in 2017

Shine Jacob  |  New Delhi 

Demonetisation impact: India's oil demand shrinks compared to China in 2017

might have given political brownies to government through recent poll victories. However, it dragged India back in terms of oil demand compared to rival China in 2017.

According to a Platts Analytics report, oil demand in India during the first quarter (Q1) of 2017 rose by a marginal 0.4 per cent, as against to 2.2 per cent in China. This was compared to an expected oil demand growth between 6-7 per cent in India in 2017, versus China’s demand growth of about 2 per cent.

“The sudden announcement by the Modi government of the exercise late last year has immobilised Indian oil demand, impacting industrial and consumer sectors which suffered from the immediate removal of over 80 per cent of the existing currency in the economy,” the report said.

The decline was seen in fuel oil, gasoil and naphtha. In addition, kerosene demand has also dropped due to government moves to substitute the fuel with liquefied petroleum gas (LPG) for cooking in consumer households. 

Total kerosene sales in Q1 slumped some 31 per cent year-on-year to an average 100,000 barrels per day.

China’s oil demand, on the other hand, saw relatively robust growth, with combined growth for the six major oil products — LPG, naphtha, jet fuel, gasoline, gasoil and fuel oil, on the back of better than expected economic performance.

In both countries, LPG is now the largest oil product being imported, although the end uses are quite different. 

“LPG demand in India has benefited from growing penetration in the consumer sector, increasing by a whopping 46 per cent in Q1. The fuel – mainly propane — is used for cooking in the residential sector and has seen a robust annual growth of about 10 per cent in recent years due to fuel subsidy reforms and the rollout of the clean fuels plan for poorer households,” the report added.  

However, it added that the Ujjwala scheme that aims to fully fund five million LPG connections by 2019, resulted in increasing the national LPG coverage from 60 per cent in January 2016 to 70 per cent of total households currently. 

This year, LPG demand growth is expected to rise by 10 per cent overall in India, keeping pace with expansion seen in the first quarter.

“Bearing the brunt of the impact of demonetisation, sales of two-wheelers plunged by 22 per cent year on year in December 2016 while passenger vehicles sales dipped 1.8 per cent in the same period. Vehicle sales rebounded to a combined 1.7 per cent growth in March 2017 as remonetisation progressed and motorists rushed to get new cars ahead of the implementation of the BS IV fuel standards in April this year,” the report added. 

Interestingly, aviation demand in both countries continues to increase at a robust pace, with India’s growth coming in at 15.4 per cent to an average 162,000 barrels per day for first quarter.

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