India's Fuel Consumption Scales Record High in December

Fuel demand for December reached 21.75 million metric tons, the highest figure as recorded in Ministry of Oil Data since April 1998, as per the Petroleum Planning and Analysis Cell (PPAC). It has witnessed an annual increase of 5.3%. 
India, being the third-largest global oil consumer/importer and largest importer of Russian crude, was able to capitalise on the European and North American sanctions implemented after the Russian invasion of Ukraine.

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Segment Breakdown

Petrol sales for December were 3.56 million metric tons, which was 7.1% higher than year earlier and a 1.1% increase from November. Diesel sales were 8.46 million metric tons, an increase of 5% YoY, but a slight decrease from the previous month. 
LPG usage was 3.08 million metric tons, representing an increase of 11.2%. Road bitumen increased 18.8% YoY and 0.3% from the previous month to total 0.91 million metric tons. Naphtha decreased 0.4% to total 1.01 million metric tons while fuel oil's total was 0.57 million metric tons, a small increase of 2.3% over last year's total.

Demand Drivers

Festive travel, the recovery of industrial activity, and rising rural consumption caused the increases in demand. The increase in LPG and bitumen reflects an increase in investments in household cooking and infrastructure development. In addition, the increase in petrol and diesel reflects the over 15% increase in vehicle sales during the month of December.

Trade Tensions Loom

The recent increase in tariffs threatened by the U.S. President Donald Trump could affect India's imports of oil from Russia. Last year, the government doubled its duty rate to 50%. Although prices may be sustained by discounts for now, there is a chance for supply to shift by 20%, based on cost increases associated with additional tariffs.

Energy Security Balance

Oil imports account for approximately 85% of the country's energy requirements. Demand is increasing at a record rate that correlates with 8% GDP growth. Russian oil imports represented almost 40% of India's total imports for the month of December and saved India approximately $15 to $20/bbl versus OPEC prices. 
India is approaching its maximum refining capacity, which will negatively impact refining margins for oil marketing companies in India. Blending of biofuels and ethanol represents a way to alleviate foreign currency fatalities associated with oil.