India's monsoon is expected to dump above-average rainfall on the South Asian nation after two years of drought, cutting its use of diesel for irrigation pumps and generators over the third quarter and potentially rejuvenating exports of the oil product.
India
is a net exporter of diesel - which accounts for about 40 percent of its oil
demand - but a jump in imports by state refiners since April helped erode an
Asian surplus of the fuel, lifting its regional profit margins to the highest
for the year so far at the end of May.
The
state refiners ramped up diesel imports in the second quarter after supplies
from private oil processors Reliance Industries and Essar Oil became too
expensive in the absence of discounts on taxes and shipping.
Now, as
the rains come and domestic demand drops, diesel imports could halt and exports
rebound.
"During
the monsoon demand for diesel sees a blip (down) because industrial activity
slows, transport movement gets affected and demand from agriculture also
reduces," said Tushar Bansal, a Singapore-based senior consultant at
energy consultancy FGE.
India's
weather office has forecast above-average rains in the four-month season from
June. The monsoon rains are crucial for India's farmers, which otherwise use
diesel-powered pump-sets to draw water to irrigate their land.
Officials at Indian state refiners, which dominate
the local retail fuel markets, said they also see diesel demand softening during
the monsoon season.
"Major
construction activities including road construction virtually stops during
rains, so there is bound to be an impact on diesel demand," said Y. K.
Gawali, head of marketing at Hindustan Petroleum Corp.
More
rain also boosts hydropower generation alleviating electricity shortages and
reducing demand for diesel to power small diesel generators to keep lights
burning.
"We
have seen very high diesel demand in April-May. In June also it is rising. But
I expect diesel demand (in the third quarter) to be 50 percent of the
April-June quarter," Gawali said.
A
sustained rise in diesel prices as oil markets recover this year is also
putting further pressure on diesel demand.
Diesel-fueled
vehicles - which were supposed to one of the driving forces behind rising
consumption in India - are as well faced with court bans over pollution
concerns, prompting some automakers to redraw engine production strategies.
Lower
diesel consumption means state refiners will take less from private and standalone
refiners such as Mangalore Refinery and Petrochemicals Ltd and Chennai
Petroleum Corp Ltd to meet demand.
"To
that extent diesel exports will go up. Refiners normally don't take maintenance
shutdown during rains so output is normally higher and that also boosts
exports," Gawali said.
Last
year, India's diesel demand grew at an annual 8 percent during the
July-September quarter, according to data posted on a government website.
This
year, FGE estimates, annual diesel demand for the third quarter could grow just
around 1 percent from a year ago to about 1.4 million barrels per day.
Representative
Image
Source: Reuters
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