India oil demand rises from four-year low as cash ban impact fades

MUMBAI (Bloomberg) -- India’s oil demand growth in 2018 rebounded from the slowest pace in four years as the country recovered from the shock of a cash ban and the roll out of a national sales tax.

The nation’s consumption of petroleum products rose 4.1% to about 210 million tons, the Oil Ministry’s Petroleum Planning and Analysis Cell said Friday. Growth improved from the preceding year’s 2.7% expansion, the slowest pace since 2013, as consumption was severely affected by a cash ban that crippled economic activity.

A spike in domestic oil prices, a credit crunch unleashed by the collapse of a shadow bank, slower vehicle sales and weak industrial activity affected oil consumption in the second-half last year, when demand declined in three of the six months.

“Diesel and LPG are two main culprits for pull-down in total demand last year,” Senthil Kumaran, senior oil analyst at energy consultancy FGE, said before the data were released. Market prices for the cooking gas “went up to 950 rupees a cylinder, way too high for the middle- and lower-income population.”

LPG demand last year rose 5.5%, the slowest pace since 2013, as high prices dented growth. Diesel consumption, which accounts for 40% of fuel demand in India, increased by 4.3% to 82.7 million tons. India’s total oil product consumption grew 3.2% in December to about 18.5 million tons.

Diesel usage rose 3.5% to 7.4 million tons and gasoline consumption rose 10% to 2.4 million tons. The International Energy Agency, which expects the country to be the fastest-growing oil consumer through 2040, cut its 2018 demand forecast for India at least two times. The agency estimated India’s oil demand growth at 245,000 bpd in 2018 and 235,000 bpd in 2019.

Lower crude prices will support demand for transportation fuels, with gasoline and diesel consumption expected to increase by 8.8% and 4.3% in 2019, respectively, Kumaran said.