• Monsoon to wash away diesel demand surge

    The 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 farmerswhich otherwise use diesel-powered pump-sets to draw water to irrigate their land.
    Officials at 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.
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