New Delhi: State-run Indian Oil Corp. on Thursday said that diesel consumption grew by around 1% in the first six months of the current financial year. This comes in the backdrop of India’s fuel demand dropping in September amid the domestic economy battling a severe demand slowdown, which has also reduced commercial vehicle traffic on India’s highways.

The tepid demand growth for diesel played out across the Indian fuel retail industry, with diesel demand growing by only 1.05% to 41,296 thousand metric tones (tmt) in the first six months of the current financial year. This comes amid the worst slump in almost two decades for the country’s auto sector that shows no sign of letting up. Energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy.

Energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy. However, a low demand hasn’t resulted in lowering of crude oil imports by state run IOC, the country’s largest refiner with its refineries operating at 100% capacity.

This also comes at a time when the National Democratic Alliance (NDA) government opened up the fuel retail market by lowering the entry barrier and allowing all companies with a net worth of 250 crore to set up outlets. The existing rules required prior investments of 2,000 crore for companies to enter the fuel retail segment, which many believed, favoured state-run oil marketing companies (OMCs), including IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd. Private sector oil companies, such as Reliance Industries Ltd, Essar Oil Ltd and Shell India, have some presence in the fuel retail space, which is dominated by the state-run firms.

IOC chairman Sanjiv Singh explained the rationale for the tepid diesel demand growth with transport sector accounting for a substantive consumption of the transportation fuel in the country.

The transport sector in turn gets impacted by other sectors, Singh said on the day that IOC reported an 83% drop in second quarter net profit on the back of slump in refinery margins and inventory losses. Net profit in July-September at 564 crore was 82.6% lower than 3,247 crore net profit in the year-ago period.

This comes at a time when the core infrastructure industries’ output—measuring a basket of eight sectors accounting for two-fifth of India’s factory output—contracted to the lowest in at least 14 years, pointing to a deepening industrial slowdown. The gauge contracted by 5.2% in September from a growth of 4.3% in the year- ago period, according to data released by the commerce and industry ministry on Thursday.

“The diesel growth was close to 1% in the first six months," Singh said and added, “During these months, particularly during second quarter, when we see the diesel demand being significantly low mainly due to monsoon months…So, that’s the reason why we are seeing diesel growth being low and it is also impacted by other sector, because a lot of diesel gets consumed in the transport sector, which is driven by other sectors’ demand," Singh said.

According to data from the Petroleum Planning and Analysis Cell (PPAC), the consumption of petroleum products in September fell to 16.01 million tonnes (mt) from 16.06 mt in September last year. The fall was primarily on account of transportation fuel such as diesel and the bitumen used in road construction. While diesel demand fell by 3.2% to 5.8 mt in September, bitumen demand fell by 7.29% to 343,000 tonnes.

“There was a heavy monsoon many parts of the country. That definitely impacted. Roads movement gets impacted because of heavy rains," Singh said and added, “Second quarter is normally a suppressed quarter for diesel growth."

This comes at a time when extreme rain events are rising globally. India is seeing fewer rainy days, but more extreme rainfall events.

The demand for bitumen also contracted by 4.4% in the second quarter of 2019-20 to 2,338 tmt as compared to 2,446 tmt in the corresponding quarter of 2018-19. India’s economic growth rate had slowed down to a more than five-year low of 5% in the June quarter.

However, there was a rise in domestic cooking gas and petrol consumption which grew by 5.97% and 6.27% to 2.18 mt and 2.37 mt respectively in September as compared to the corresponding period last year. India spent $111.9 billion on crude oil imports of 207.3 million tonnes in 2018-19.

“In terms of absolute numbers the LPG (liquefied petroleum gas) growth is happening significantly. When we talk about gasoline (petrol), in the first six months, we saw a growth of close to 9%, which is fairly good inspite of a reduced sale of auto vehicles. We are still seeing a decent growth as far as the gasoline is concerned," Singh said.

India’s demand for domestic cooking gas has increased due to the NDA government’ marque scheme—Pradhan Mantri Ujjwala Yojana (PMUY), which provides free cooking gas connections to poor families and met its target of reaching 80 million poor families, ahead of schedule.

“We are still seeing positive growth for petroleum products," Singh said.

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