Fitch Expects Fuel Demand To Remain Strong At 5%

Fitch Expects Fuel Demand To Remain Strong At 5%

The strong demand for oil products will continue and may stay above 5 per cent in the medium term, driven by demand for three key items – petrol, diesel and cooking gas, said a report.

The positive forecast comes even though demand uptick has almost halved to 2.6 per cent in the first four months of the current fiscal year from 5.6 per cent a year ago.

“We expect demand for key products — petrol, diesel and liquefied petroleum gas — to remain strong and this will ensure that the overall demand growth will remain around 5 per cent over the medium term due to continued growth in auto sales led by cars and two-wheelers and the overall economic growth,” said the report by Fitch Ratings.

Petrol and LPG demand rose more than 10 per cent y-o- y in the April-July period of this year, although the overall petroleum product consumption growth softened to 2.6 per cent from 5.6 per cent in the year to March 2017.

But the rating agency warned that refining margins will moderate overall and for the three state-owned oil firms, Indian Oil, Bharat Petroleum and Hindustan Petroleum, which saw it narrowing in Q1 partly due to inventory losses.

“We expect refining margins of state-owned refiners to narrow but still be stronger than the past,” it said, but added Reliance and HPCL-Mittal Energy will see robust GRMs.

It also expects capex in the downstream and petrochemical segments to grow till 2022 both by the private sector as well as state-owned players. These players have a capex plan of USD 45 billion over the next five years.

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It warned the already weak oil and gas production, which was flat at around 12 million metric tonne during April- July 2017, is likely to decline gradually in the near to medium term in the absence of any major new discoveries and natural field declines.

“But over the longer-term, output may rise on the back of the new hydrocarbon exploration policy that seeks to address the hurdles to investment in the old framework, including gas pricing,” Fitch said, adding sentiment is buoyed by USD 6 billion investment plan by RIL and partners.

On natural gas front, the report said it sees demand to rise gradually. Natural gas consumption grew by about 1 per cent y-o-y in April-July 2017, compared to 6.2 per cent in FY17. This will be boosted by the push to expand city-gas distribution networks and focus on cleaner fuel to support this growth.

On the daily retail price revision since July 1, which has seen the rates going by almost 10 per cent, the report expects this to intensify retail competition.

Though the three state-owned OMCs account for about 92 per cent of retail outlets, private companies, which were cautious earlier, may increase investment in retail over the medium-term, the rating agency added. Read more

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