India's petroleum products consumption growth at five-year high

Government says high economic growth, low prices, festival season demand and Bihar elections led to surge

If the consumption of petroleum products is an economic indicator, India has reason to cheer. The country’s consumption of domestic and industrial fuels — petrol, diesel, cooking gas, kerosene, naphtha and others — grew 17.5 per cent in October, the highest monthly growth rate in five years.

Consumption of petroleum products rose 17.7 per cent to 15.2 million tonnes (mt) in October from 12.9 mt in the same month in FY15, according to data from the Petroleum Planning and Analysis Cell (PPAC), the petroleum ministry’s technical arm. A Business Standard review of the numbers showed this level has not been achieved in the period since April 2010, for which data is publicly available.

The surge in fuel consumption was led by a 16.3 per cent growth in diesel, which alone accounts for 41 per cent of the basket, followed by 14.5 per cent growth in petrol and 12.5 per cent in cooking gas usage.

The ministry called India “the world’s fastest growing economy”, undergoing a “shift in economic growth to a higher gear” with “improvement in ease of doing business”, citing recent reports from the International Monetary Fund and global investment firm Goldman Sachs.

“Low oil prices have created a favourable environment for the economy and the outlook for consumption of petroleum products looks positive in the current and the next financial year, as Indian growth will benefit from low commodity prices, recent policy reforms and a pick-up in investment. Growth in India is, thus, expected to rise above other major emerging economies,” the ministry said in its analysis of the numbers in the PPAC report.

The report attributed the spurt in fuel consumption to a range of factors. These include higher growth, low product prices, a rise in the demand for fuel due to the festival season and the Bihar elections, increased automobile sales, deficient rainfall pushing the use of diesel generator sets for irrigation, start of mining activity in Chhattisgarh and initiation of projects on national and state highways.

According to experts, the new numbers on consumption of petroleum products are attributed to both one-off factors and a larger trend of a pick-up in the economic activity. “It is a mix of one-off factors like low prices fuelling demand and a subdued monsoon that increases diesel usage for pumpsets, apart from a larger and general trend. If the economy starts recovering, one would see more consumption of petroleum products, as the Indian industry is energy-intensive,” said D K Joshi, director and chief economist at CRISIL.
 

He also added the trend of high fuel consumption is here to stay mainly because average global crude oil prices, which have a significant bearing on petroleum product prices, are unlikely to go up in the next financial year too. Global oil prices have slumped by more than a half since June 2014 to around $40 per barrel currently. International benchmark Brent crude, which had touched a six year low of $42.23 per barrel in August, fell 1.9 per cent to $43 a barrel on Friday while US crude West Texas Intermediate (WTI) dropped 2.7 per cent to $39.97 per barrel.