BackDiesel demand drops for the first time in a decade
Deceleration in diesel demand due to deregulation through small monthly hikes, says Indian Oil chief Butola
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New Delhi: For the first time in more than a decade, diesel demand has declined this fiscal as monthly price hikes and increased power generation clipped consumption, Indian Oil Corp. Ltd (IOC) chairman R.S. Butola said on Thursday.
Diesel, which is India’s most consumed fuel accounting for close to 45% of the total petroleum product demand, has seen sales growth of 6-8% since 2003-04.
But this year, it has fallen by 0.8% over last year to 39.46 million tonnes.
“This year there has been 0.8-1% degrowth," Butola said at the third World Energy Summit.
The deceleration in diesel demand, he said, was due to better power production which saw lesser burning of the fuel in gensets.
But the bigger reason is the move to deregulate diesel rates through small monthly increases. “Small adjustments of 50 paise every month has brought some parity with cost," he said.
Diesel prices have risen by a cumulative ₹ 6.62 per litre since January, leading to a drop in demand.
Butola said petrol consumption had dropped when the fuel was deregulated in June 2010 but diesel continued to see rise in consumption as it was heavily subsidized thereby discouraging people to use it optimally.
Now, petrol is at par with its cost of production but the current selling price of diesel still is a ₹ 9.99 a litre lower than its cost.
“We believe that market forces need to be allowed to have proper inter-play (on demand and consumption)," he said.
While diesel sales dropped in first seven months of the fiscal year that began in April, petrol consumption has risen by 10% to 9.05 million tonnes.
Overall, fuel demand during April-October was largely unchanged at 90.576 million tonnes when compared with 90.233 million tonnes of consumption in the same period last year.
Besides losing ₹ 9.99 a litre on diesel, fuel retailers are currently losing ₹ 36.20 per litre on kerosene sold through the public distribution system and ₹ 542.50 per 14.2-kg cylinder of domestic cooking gas (LPG), according to IOC, the nation’s largest oil refining and marketing company.
Last fiscal, diesel sales had risen 6.68% to 69.08 million tonnes. Diesel consumption in 2003-04 was 37.07 million tonnes and has risen to 69.08 million tonnes in 2012-13. It had recorded a 11.1% growth in 2007-08.
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