After dipping by about 2 per cent in March from February, overall consumption of oil products looks set to extend declines this month.
The usually teeming streets of India’s commercial capital of Mumbai looked more like a scene from a post-apocalyptic movie last weekend, an ominous sign for energy demand in the world’s third-biggest oil importer.
On Marine Drive, which overlooks the Arabian Sea, the regular hustle and bustle was completely absent, while Dr Dadabhai Naoroji Road, a thoroughfare that runs past one of the world’s busiest railway stations, was also eerily empty.
That’s a gloomy portent for India, where fuel consumption still hasn’t fully recovered from last year’s national lockdown that saw oil demand fall to the lowest since 2007. After dipping by about 2 per cent in March from February, overall consumption of oil products looks set to extend declines this month.
Maharashtra is imposing a strict lockdown from late Friday until Monday morning this month and a curfew every night to curb a surge in Covid-19 cases. The deserted avenues, with few vehicles in sight, are a sobering reminder of last year’s national restrictions that threw the economy into the worst recession in decades.
Daily infections rose to a record 168,912 on Monday, and the total tally pushed past 13.5 million to overtake Brazil and be second to only the US. After seemingly getting the virus under control, the world’s second-most populous nation is facing a nastier wave that’s overwhelming hospitals, triggering vaccine shortages, and forcing some states to impose stay-at-home orders.
All of this bodes ill for energy demand. Consumption of diesel — the fuel that keeps India’s trucks, farms and factories running and accounts for almost 40 per cent of oil-product sales — was around 3 per cent below 2019 levels in March. Industry consultant FGE cut its growth estimates for key fuels this quarter to about 30 per cent from a year earlier, compared with an earlier projection of almost 35 per cent.
FGE sees diesel demand averaging 1.72 million barrels a day in the first half of the year, before dropping to 1.71 million in the second six months. That’s lower than 2019, when consumption averaged 1.73 million barrels per day, according to Bloomberg calculations using official data.
Another set of images shows migrant workers crowding bus stations to head home to rural towns and villages in what threatens to become a repeat of last year’s exodus. While the current lockdowns aren’t as extensive as last March, there’s panic among workers and if more of them choose to flee major cities it will pose a setback to factories and infrastructure projects that rely on them.
In terms of the global impact on oil prices, a loss of demand from India will certainly be felt. But the affect may be tempered by what’s happening in China, where Beijing’s success in tackling Covid-19 is pushing it closer to overtaking the US and becoming the world’s biggest economy. Crude imports by the No. 1 oil buyer rose 9.5 per cent in January to March from a year earlier, according to data released on Tuesday.
Maharashtra, which accounts for about 15 per cent of national GDP, has halted all non-essential services. Office staff at private companies have been asked to work from home, with some allowances made for banks and stock exchanges, while malls and restaurants have been ordered to shut through April.
New Delhi has imposed a night-time curfew and is warning of more restrictions if its hospitals can’t cope with the uptick in virus cases. In Karnataka, home to India’s technology centre of Bengaluru, curbs have also been announced.
The restrictions have already started to hit India’s economy. Unemployment rose to 8.6 per cent for the week ending April 11, up from 6.7 per cent two weeks earlier, according to private data from Centre for Monitoring Indian Economy. Urban areas are suffering more, with jobless rates nearing 10 per cent.
The measures announced to combat the second wave of the virus risk weakening India’s economic recovery, Moody’s Investors Service said in a statement on Monday. Retail and recreation activity across India dropped by 25 per cent as of April 7 from February 24, it said, citing Google mobility data.
Gasoline, however, has so far defied the energy use trend, with people opting to use cars and scooters when returning to work last year after the lockdown to avoid infection rather than diesel-guzzling buses or trains. Consumption of the motor fuel rose to four-month high in March and was 27 per cent higher on a year-on-year basis and about 6 per cent above 2019 levels. Whether that kind of demand can continue as more restrictions are imposed remains to be seen.
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