Country's oil demand growth weakest since 2013 as economy declines

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India’s oil consumption in 2017 expanded at the slowest pace in four years as a surprise ban on high-value currency notes and a new national sales tax weakened the economy.

The nation’s consumption of petroleum products rose 2 per cent to about 200 million tonnes, the Oil Ministry’s Petroleum Planning and Analysis Cell said Wednesday. That’s the slowest since 2013, when demand grew 1.7 per cent while global oil prices averaged about $109 a barrel, almost double last year’s level.

“The cash ban had a bigger impact on oil demand in the first half, while the goods and services tax impacted the second half,” Nevyn Nah, an oil products analyst at Energy Aspects, said by phone from Singapore, adding that good rainfall during the monsoon season also lowered diesel demand.

Growth slowed down in the world’s second-most populous nation after Prime Minister Narendra Modi’s unprecedented cash ban in 2016 and the chaotic rollout of a goods and services tax last year. India forecasts its economy will expand 6.5 per cent in the year through March, the slowest pace since Modi came to power in 2014.

India’s slowdown last year followed the 11 per cent surge in 2016, the biggest gain on record, spurred by rising income levels that propelled greater use of cars, trucks and motorbikes.

The cash ban and the new tax hit truckers the hardest, affecting demand for diesel as they are the largest consumers of the fuel in India. Diesel accounts for almost 40 per cent of the country’s oil products use.

The International Energy Agency, which expects the country to be the fastest-growing oil consumer through 2040, cut its 2017 demand forecast for India at least three times, following sharp fluctuations in monthly consumption. The agency estimated India’s oil demand growth at 135,000 barrels a day in 2017 and 275,000 barrels a day in 2018.

India’s total oil products consumption grew 7.5 per cent in December, the most in three months. The country consumed about 17 million tonnes of oil products last month, up from about 16 million tonnes a year earlier.

“The worst is over,” Nah said. “As the government embarks on pro-growth policy to revive the economy and consolidate electoral support before the 2019 general election, Indian oil demand growth is likely to pick up strongly.”

Additional consumption data for 2017:
  • Diesel demand rose 3.3 per cent to about 79 million tonnes
  • Gasoline consumption increased 7.1 per cent to around 25 million tonnes
  • LPG usage rose 8.1 per cent to about 23 million tonnes

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