Indian crude runs set to increase amid healthy margins

India saw its average refining run rates slowing marginally in March amid volatility in crude oil prices triggered by the Russia-Ukraine conflict, but analysts expect robust margins and a sustained revival in demand for oil products to lift overall year-on-year growth in throughput close to double digits.

In addition to a sharp recovery in oil products consumption at home, robust export demand for Indian oil products, such as gasoil, is prompting Indian refiners to keep their run rates much above 100%, a trend that will continue in the coming months, analysts told.

“Recovering domestic demand and good export margins, especially for gasoil, which is the major product of the Indian refineries, will keep Indian refinery runs high in 2022,” said S&P Global’s Shreyans Baid, Platts Analytics’ oil analyst for South Asia.

“We expect that Indian refinery runs in 2022 will be better than 2021 by about 8%,” he added.

India’s overall crude runs eased to 106% in March, from 107% in February, the latest survey from India’s oil ministry showed. However, the refinery run rate was higher than the 99% level recorded in March 2021.

Average run rates in the 2021/22 (April-March) cumulative 12-month period stood at 97%, compared with 89% a year earlier, reflecting a much smaller impact of the second wave of the pandemic in 2021 compared to the first wave in 2020.

In March, state refineries recorded an average run rate of 114%, compared with 115% in February and 106% in March 2021. State-owned refiner Indian Oil Corp recorded an average run of 112% at its nine standalone refineries in March, compared with 108% in February and 100% in the year-ago period.

India’s second-largest state-owned refiner Bharat Petroleum Corp Ltd, or BPCL, registered a 119% run rate in March, compared with 118% in March 2021 and 125% in the month prior.

Hindustan Petroleum Corp Ltd, or HPCL, India’s third largest state-owned refiner, recorded a run rate of 114% in March, compared with 118% in the year prior and 124.5% the month prior.

“Refining companies are currently enjoying higher gross refining margins which will support higher refinery run rates,” said Sumit Pokharna, vice president at Kotak Securities.

Private refineries recorded a 91% run rate in March, compared with 87% in March 2021 and 94% in February.

The domestic unit of Reliance operated at 109% in March, compared with 101% the year prior and 110% in February. The company’s export-focused refinery ran at 69% in March, unchanged on the year but slightly lower than 75% seen in February. Reliance’s combined run rate was 89% in March, compared with 84% in March 2021 and 92% in February.

The International Monetary Fund expects India’s GDP to grow by 8.2% in the fiscal year 2022/23 (April-March). “With higher GDP growth, we expect India’s oil and gas demand to remain strong,” Pokharna added.

India’s oil demand is expected to grow by 8.2% to 5.15 million b/d in 2022 as the economy continues to rebound from the pandemic, meaning India is projected to consume an additional 0.39 million b/d of crude oil in 2022, he added, quoting OPEC forecasts.

India’s crude production fell 3.37% year on year to 2.53 million mt in March. The output for the month was 11.15% higher than in February.

“Just to highlight, in 2021, India’s crude oil demand rose by 5.61% to 4.76 million b/d. On the flip side, India’s crude oil production has been on a decline in the past few years. The drop is mainly due to the ageing oilfields. Naturally, India needs to rely on higher imports,” Pokharna added.

“We believe the bigger issue India is currently facing is the elevated crude oil prices due to ongoing geopolitical issues, which can hurt demand at some point. The government is focusing on alternative fuels to reduce the oil import burden,” he added.

India’s demand for oil products totaled 19.41 million mt, or 4.9 million b/d, in March, up 4.2% from March 2021, the latest provisional data from the Petroleum Planning and Analysis Cell of the oil ministry showed.

Analysts attributed the highest monthly oil demand in three years to the domestic fuel markets’ absorption of supplies in expectation of price hikes after elections in a couple of key states.

From January through March, the demand for oil products totaled 54.61 million mt, or 4.8 million b/d, up 3.1% from year-ago levels, as economic activities recovered after the third coronavirus wave.

Source: Platts

Tags: Domestic Demand, Exports, Indian Crude, Refineries