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For India,crude oil holds the key

Sales of petrol dipped by 4.4 per cent in May this year in India...

Written by ENS Economic Bureau |
July 26, 2012 12:57:38 am

Sales of petrol dipped by 4.4 per cent in May this year in India — only the fourth time in the last five years when this has occurred and the second time in the last seven months.

When you combine this with the third successive month for which sales of aviation turbine fuel (ATF) fell,the trend seems to head in only one direction. Spooked by lower disposable income,people are cutting back on personal and business travel as the growth rate of the economy decelerates.

With a weak monsoon keeping the economy on slow burner,this means Indian demand for crude oil in 2012-13 is likely to undershoot the projected 1,57,068 thousand metric tonnes (TMT). According to the oil ministry’s Petroleum Planning and Analysis Cell,this assumes a 6.1 per cent growth rate over last year.

All this,of course,assumes that global supply of crude will not get tight as sanctions on Iran including its shipping fleet become tighter. An IEA report says for the first time since the second quarter of 2009,countries have added to their stock of strategic reserves in the first quarter of 2012. The Chinese demand for such stock pile can itself suck away 60 million barrels. Combine this with an OPEC supply capacity of 30 million barrels but low non-OPEC capacity,“the market will be slightly easier,but (show) low spare capacity”. But as of now prices are holding below the trend line of $106 a barrel for Brent crude. The impact of a lower oil import in 2012-13 will certainly help India to cut its import bill. As exports are not expected to reach the projected 20 per cent growth rate,lower imports will be expected to keep the trade deficit at manageable levels of below last fiscal’s $184 billion.

The scenario of India coming out positive in this fiscal on the oil front is then not surprising. As petrol bunks remained over full in May,the government estimates that demand for 3 of the 11 major crude derived products will turn negative this year.

Of these,kerosene demand too is expected to shrink by close to 6.5 per cent. While the demand for ATF is expected to grow by 6.9 per cent,the sluggishness in the first three months and the fact that airlines are not rushing to celebrate a spike in demand for air travel means this too could be flat. The only category bucking the trend is diesel. But if a price correction is made in mid year that would put paid to this rate of growth here too. The final result for the oil economy could be pleasant in 2012-13.

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