June 20, 2012 / 4:53 PM / 7 years ago

UPDATE 1-India 2012/13 oil product demand seen up 6.1 pct

* 2012/12 diesel sales seen up 5.9 pct y/y, gasoline may up 5.8 pct

* Thrust to infrastructure sector to boost fuel demand

* India local fuel sales up 5.4 percent in May for a year ago (Recast, adds details)

By Nidhi Verma

NEW DELHI, June 20 (Reuters) - India’s oil products demand is likely to grow an annual 6.1 percent in 2012/13, the highest in five years, as the government’s thrust on infrastructure to boost the economy is set to spur consumption of industrial fuels.

India’s economy grew at 6.5 percent in the year to March 2011, and is expected to rise close to 7.5 percent this fiscal year. It grew at 5.3 percent in the January-March quarter against the year ago period, lowest in nine years.

New Delhi’s plans to speed up major infrastructure projects and prospects of average monsoon rains this year may improve India’s economic picture, boosting demand for commercial fuels like heavily-subsidised diesel, bitumen and petroleum coke.

In this fiscal year, India is estimated to consume 157.07 million tonnes of refined fuel, the government data showed.

The growth in the demand of diesel, which accounts for over 40 percent of refined fuel consumption in India, is set to rise 5.9 percent to 68.55 million tonnes, while that of gasoline is expected to grow 5.8 percent to 15.86 million tonnes.

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For a table on India’s demand estimate see

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Although the rate of growth in diesel demand this fiscal year is the lowest since 2006/07, absolute numbers still reflect India’s distorted pricing policy of subsidising the fuel, critcised by economists and investors.

India, which imports more than 80 percent of its fuel needs, liberalised petrol prices in June 2010 but continues to regulate diesel prices to protect the poor.

Reducing subsidies on diesel is a political hot potato for the world’s fourth-biggest oil importer, as any price increase increase would fuel inflation at a time when Asia’s third-biggest economy is grappling with a slowdown.

Growing consumption of diesel is a major headache for the country already struggling with ballooning budget and current account deficits. Adding to the woes, Standard & Poor’s and Fitch Ratings have already threatened to cut India’s credit rating to junk.

Diesel prices are about 42 percent cheaper than gasoline.

Last month, India’s gasoline consumption declined for the first time since November. It fell 4.4 percent to 1.29 million tonnes in May from a year earlier, as state-fuel retailers raised prices by a record 11 percent.

Diesel consumption in May rose 9 percent from a year earlier to 6.38 million tonnes, while overall fuel demand was up 5.4 percent to 13.58 million tonnes.

Consumption of diesel is also rising as it is being used as a replacement for fuel oil, because of lower prices, higher calorific value and cleaner burning properties.

Editing by keiron Henderson

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