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With the second wave of coronavirus pandemic raging across India, its full impact will reflect in reduced crude oil imports by refineries for May, according to S&P Global Platts Analytics.

This assumes significance given that India is a key refining hub in Asia, with an installed capacity of over 249.36 million tonnes per annum (mtpa) through 23 refineries. The fuel demand in India has again dipped with several states imposing lockdowns in the world’s third-largest oil importing nation.

“India's crude imports and refinery runs remained robust in April as refiners shipped in cargoes contracted earlier and refrained from backing out of deals despite a second wave of COVID-19 triggering demand destruction fears. Analysts, however, said the full impact of the crisis will get reflected only in May numbers," S&P Global Platts said in a statement.

The country’ largest refiner state run Indian Oil Corporation Ltd (IOC) last week said its capacity utilization, which had reached 100% in last November, has come down to 84%, as states across the country have imposed lockdowns. Energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy.

“Just like last year, India's refiners had been slow to respond as crudes were bought in advance. There was also uncertainty over demand weakness as different states took on measures of varying restrictions to contain the spread of coronavirus," said Lim Jit Yang, advisor for Asia-Pacific oil markets at S&P Global Platts Analytics in the statement.

Capacity utilization at IOC had shrunk to around 35% at the beginning of the lockdown during the first wave of the pandemic last year, due to India’s petroleum product demand nosediving. India had imposed the world’s largest and strictest lockdown last year to contain the virus that originated in Wuhan, China.

“But as they started to realize the severity of demand impact from lockdown measures, they are expected to reduce runs and some have already done so as sales of the first half in May turned out to be very weak," Yang added.

India spent $101.4 billion on crude oil imports in 2019-20 and $111.9 billion in 2018-19. The cost of the Indian basket of crude, which comprises Oman, Dubai and Brent crude, was at $66.76 a barrel on 24 May.

“India's oil product demand fell 9.4% to 17 million mt in April over March volumes, and demand in May is expected to decline even further month-on-month," the statement said.

The demand is however expected to recover.

“India's oil demand is expected to witness a growth of 260,000 b/d year on year in the first half of 2021, and 390,000 b/d year-on-year in H2. Demand in H2 will be 700,000 b/d higher than H1, driven by a more broad-based pickup in economic activity amid widening vaccination rollout," the statement added.

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