Diesel use in India set for record in 2018

By Koustav Samanta

SINGAPORE (Reuters) - Demand for diesel in India is set to hit a record in 2018 as the government targets massive infrastructure spending in the fiscal year that starts April 1, with Prime Minister Narendra Modi seeking a second term in elections in 2019.

Diesel consumption growth in calendar 2018 may be more than double last year, analysts and traders told Reuters, aided by an expected regular monsoon this year that should boost demand in the world's third-largest oil consumer for diesel used in harvesting and other farming, leading to higher rural spending.

"Barring extreme events and expecting a continuation in good GDP (gross domestic product) growth accompanied by an average monsoon, India's diesel consumption should be up to about 7.7 million tonnes towards the end of the year," said Sukrit Vijayakar, director of consultancy Trifecta Energy.

Strong growth would end two choppy years which saw consumption dented by a surprise demonetization programme launched by India's government that crimped public spending after the most commonly used bank notes were removed from circulation at virtually no notice.

India's average monthly diesel consumption was about 6.6 million tonnes, or about 1.6 million barrels per day (bpd), in 2017. That was up about 3.1 percent from 2016, when average monthly consumption was 6.4 million tonnes.

Demand for the industrial fuel in Asia's third-biggest economy is expected to grow between 5 and 8 percent this year, market participants said.

Eying the 2019 elections, Modi is budgeting 14.34 trillion rupees ($221 billion) on rural infrastructure in the 2018/19 business year.

Indians will also go to the polls in five states by January next year.

"Bullish factors to look forward to in regards to Indian gasoil (include) solid economic growth with special emphasis towards rural development, improving industrial/freight activities, an uptick in the construction sector and not the least, the upcoming elections," said Sri Paravaikkarasu, head of East of Suez oil at consultancy FGE.

Meanwhile, an expected plentiful monsoon would boost agricultural expansion as seasonal rainfall is likely to be unaffected by an El Nino weather pattern forecast to set in after the four-month rainy season ends in September.

"In the absence of rain, diesel will be used for power generation. However, a good rainfall will mean that diesel will be used a lot more in harvesting," Vijayakar said.

India guzzled 13.2 million tonnes of diesel in January and February, up 10 percent from a year earlier, recent government data showed.

Meanwhile India's diesel exports in February were up 32 percent to 2.31 million tonnes year-on-year.

Election spending and "the tendency of state-run refiners to refrain from increasing diesel prices during this period, will particularly support the fuel's demand," said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London.

($1 = 64.8050 Indian rupees)

(Reporting by Koustav Samanta in SINGAPORE; Editing by Aaron Sheldrick)