India’s oil demand may rise nearly 4% in December quarter: S&P Global
- OMCs, however, will likely trim their profits in FY25 on softening crude prices, says Crisil Ratings
India's oil demand is expected to rise by nearly 4% on-year in the December quarter due to festivals and the rabi season, ratings agency S&P Global said on Thursday.
"We forecast an annual demand increase of 50,000-55,000 barrels per day (b/d) for both gasoline and diesel in Q4 (2024), although the northeast monsoon rains may slightly impede demand," said Himi Srivastava, South Asia oil analyst at S&P Global Commodity Insights.
However, according to Crisil Ratings, oil marketing companies (OMCs) will likely trim their profits in 2024-25 due to softening global crude prices.
Heavier-than-normal rains affected road transportation, construction, and mining activities, pulling down oil demand in the country.
In September, diesel demand fell as much as 2% year-on-year (y-o-y), while gasoline demand rose 3% y-o-y, though it was down sequentially, according to S&P's analysis.
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However, demand is expected to pick up due to the festive season, which marks a rise in consumption. Oil demand goes up during the period as people travel more and purchase more automobiles.
Moreover, the wedding season from November to January results in increased automobile sales and movement of goods, further pushing up fossil fuel demand, added S&P's Srivastava.
S&P said elections in major states like Maharashtra and Jharkhand are also expected to boost transportation fuel demand.
India meets over 80% of its oil demand via imports.
Volatile crude prices
OMCs, on the other hand, are likely to trim their profits in 2024-25 as oil prices have fallen to approximately $75 per barrel from $82 per barrel in the first half of the fiscal, said Crisil.
OMCs will only gain $12-14 per barrel in 2024-25, compared to the $20 per barrel gain in 2023-24, as discounts on Russian crude wane and the impact of inventory loss kicks in with softening crude oil prices, it added.
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That said, the unchanged retail fuel prices amid volatile oil prices will support the industry's overall returns.
“Discounts previously earned on Russian crude oil have tapered, and oil price is factored at ~$75 per barrel on average for the second half of the fiscal, down from ~$82 per barrel in the first half, which would result in inventory loss. That said, overall returns will be bolstered by marketing margins (net of operating expenses) that are likely to continue at ~ ₹4.5 per litre (or ~$9 per barrel), factoring no reduction in retail fuel prices,” said Aditya Jhaver, director, Crisil Ratings.
OMCs are expected to earn approximately ₹52,000-54,000 crore cumulatively in the fiscal, which will partially support their planned ₹90,000 capex, Crisil added.
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Capex spending may raise OMCs' debt-to-Ebitda ratios. Ebitda refers to earnings before interest, tax, depreciation, and amortization costs.
“While profits could moderate on-year, the industry is expected to continue with capex, which will partly be debt funded. Hence, the ratio of debt to Ebitda of OMCs rated by us is seen increasing to ~3 times in 2024-25 from 1.9 times a year ago," said Joanne Gonsalves, associate director, Crisil Ratings.
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Business NewsEconomyIndia’s oil demand may rise nearly 4% in December quarter: S&P Global
First Published:24 Oct 2024, 04:31 PM IST
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