Home >Companies >News >Refiners cut capacity by 5-6% as lockdowns hit fuel demand

With various state governments imposing lockdowns and curfews as the pandemic’s second wave continues to surge across India, fuel demand is under pressure, said oil companies, forcing them to cut capacity utilization from 100% to 94-95%.

Maharashtra, Delhi, Jharkhand, Karnataka, Rajasthan and Goa have imposed local lockdowns and curfews.

“We have cut the capacity marginally at present and are observing the situation. In case the cases continue to rise, and states extend lockdowns and curfews, we will have to review the situation," said a senior official of an oil marketing company.

Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp. and Reliance Industries did not respond to email queries.

“Refining and marketing companies are cutting down on capacity utilization, though the demand slowdown is not as severe as in April 2020," said Sabyasachi Majumdar, group head and senior vice president, ICRA, adding that capacity utilization and revenues and profitability of the refining and marketing firms is likely to get impacted owing to muted demand.

It will also impact their gross refining margins due to the disproportionately high fuel prices and losses, besides operating expenses on a per-barrel basis at lower capacity utilization.

According to the Nomura India Business Resumption Index, a weekly tracker of the pace of economic activity, Google retail and recreation and workplace mobility indicators have fallen by 11 percentage points and 13.6 percentage points, respectively, compared to the previous week—far steeper than the last few weeks.

“While cities in Maharashtra happen to be most hit (Mumbai and Pune), we are also observing weekly deterioration in the driving traffic in other cities like Bangalore, Chennai, Delhi and Hyderabad," said the Nomura India Business Resumption Index report, adding that the second wave is poised to badly hit auto sales, with factories asked to operate at half the capacity and dealerships shut.

Lim Jit Yang, adviser for oil markets for Asia-Pacific at Platts Analytics, said with lockdowns being imposed, India’s total oil product demand growth for 2021 is adjusted down to 400,000 barrels per day for the latest update, as against 440,000 barrels per day last month, pending further adjustment in the future depending on the covid-19 situation.

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