India, the world’s third-largest oil consumer behind the US and China, is the main reason for the oil demand recovery as economies reopen. But the country is devastating Health crisis Made it impossible. Everyone from oil traders to the world’s largest producers are terrified.
Indian Prime Minister Narendra Modi is facing sharp criticism over the rise in coronavirus cases, a mela religious festival that allowed large election rallies and marched ahead of Kumbha, shortly after announcing that the country was in the “Kovid-19 pandemic endgame”.
As my Bloomberg opinion colleague David Fickling wrote, the current situation in India is that Kovid will kill more people in 2021 than last year. The number of pandemic deaths in the country is many times higher than the official statistics suggest.
The record number of new coronavirus cases in India is a human tragedy. This has serious implications for the global oil industry.
India is one of the brightest places for the rise in oil demand, along with China, which seems to have controlled the epidemic, and economic activity and leisure travel are slowly resuming due to widespread vaccination. Oil demand in the world’s third-largest oil market is expected to be above or close to pre-epidemic levels this year. That prophecy is now certainly less modified.
New Bloomberg News colleagues Debjit Chakraborty and Saket Sundriya say diesel and gasoline consumption in India will fall by 20% this month from March, and the streets of major cities like New Delhi and Mumbai have become quieter.
Stay-at-home consultants are likely to touch on motor fuels, which have so far been supported by a massive shift from public transport to private cars and motorbikes. According to the All India Motor Transport Congress, the sanctions have also damaged trucks and buses, halving their business.
Refinery runs are expected to fall in response to the contraction in demand, which will lead to the construction of crude reserves, which will weigh on future purchases even after the situation improves. The crude purchases of Indian refineries will almost fall if the penetration and subsidiary limits continue.
But its impact is not limited to the South Asian country. Countries from the UK to Canada have started banning air travel from India and this is touching the international jet fuel demand, which is still hovering.
Even the world’s largest oil producers are angry. The OPEC + Group, which unites countries such as Saudi Arabia, Iraq, the United Arab Emirates and Russia, is raising demands such as supporting crude oil prices and reducing production cuts to record levels. It will now have to be reconsidered.
Ministers will hold their next monthly meeting later this week. When they met at the beginning of the month, they agreed to a schedule to relax some of their output cuts in May, June and July. Those plans need to be revised before they can take effect.
The group plans to add 2.14 million barrels per day to global supplies between May and July, and plans to reduce the upcoming meeting to a technical meeting to monitor members’ progress. This may not be possible anymore.
Producers in the Middle East may be in a lot of danger. It takes five to six days to transport raw material from the Persian Gulf to India, compared to five to six weeks for shipping from the Gulf of Mexico. India’s decision to reduce purchases from US manufacturers will not reduce the volumes coming into its storage tanks until June. A similar decision on Middle Eastern supplies could be experienced by the end of April.
India is already looking for alternatives to the Saudi Arabian knot as relations between the two countries break down over prices. The fall in demand will speed up that process.
With delays in easing output cuts since January, OPEC + Group hopes to get back on track by July. The slowdown in India’s oil demand makes it even more difficult, once again there is a risk of delaying the opening of taps or lowering crude prices. None of them want it.
This column does not reflect the opinion of the editorial board or Bloomberg LP and its owners.
Julian Lee is an oil strategist for Bloomberg. Previously worked as a Senior Analyst at the Center for Global Energy Studies.
This story was published from the Wire Agency feed with no changes to the text.