India’s oil demand expected to be the worst hit among emerging economies: JY Lim, S&P Global Platts
New Delhi: Commodity research firm S&P Global Platts recently said in a report India’s economic activity and oil demand has been hurt recently with states re-imposing stringent lockdowns following a sharp uptick in coronavirus cases. The country is the worst-hit among emerging economies when it comes to oil demand, Asia Oil Market Advisor JY Lim says in an exclusive interview with ETEnergyworld. Edited excerpts..
Based on the data and analysis done by Platts related to India’s petroleum products demand trends, how bad or worrisome is the situation?
India’s oil demand was down year-on-year by 2.1 million b/d in April, and then improved in May and June, but still down year-on-year by 1 million b/d and 335,000 b/d, respectively. In July, demand dropped further by 515,000 b/d year on year, derailed by localized lockdowns and flooding in some parts of the country due to heavy monsoon rains. It would be worrisome if demand continues to drop further.
If India is yet to reach the peak of Covid infections, it means economic activity could be further disrupted in months to come. What gives you the confidence the petroleum products demand recovery will improve over the second half of the current year 2020?
We expect demand to gradually improve over the coming months as the situation slowly comes under control, but there is a downside risk if demand continues to worsen due to further lockdowns. According to Platts analysis, India will end 2020 with annual drop in oil demand at 480,000 bpd (or 9.5 per cent). How does that statistic compare with other key emerging and developed nations? Would this be the largest drop in oil demand among all the nations?
Among the emerging economies, India is expected to be the worst hit country in terms of b/d basis. Brazil, which is also badly hit by COVID-19, and will see a drop of 13% though contract year-on-year only by 255,000 b/d due to lower demand base. As for developed economies, the US is expected to drop year on year by 2.2 million b/d this year or 11% – a lot worse than India.
At a policy/regulatory level, what would you recommend the Indian government to do to address this expected drop in oil demand over the next few months?
In addition to combating COVID-19, the Indian government could consider lowering excise duties on petrol and diesel, which have been raised in recent months and are high relative to other developing countries, so as to alleviate burdens on consumers and businesses in the midst of the pandemic.
Can you also throw some light on the outlook for the next year 2021?
S&P Global Platts expects India’s oil demand growth in 2021 to be positive, rising by some 400,000-500,000 b/d as its economy rebounds next year.