Economic recovery to stoke demand for petroleum products

CRUDE OIL: A CRISIL ANALYSIS

After a drop of 9.3 percent year-on year (YoY) in the financial year 2021 (FY21), demand for petroleum products is estimated to grow 6-8 percent YoY in FY22, supported by expected revival in demand across end-user industries, especially in personal mobility.

Demand is expected to increase further by 6-8 percent in FY23, driven by healthy demand growth in the liquid petroleum gas (LPG) and naphtha segments.

Demand for petroleum products grew 7 percent from April to November 2021. Recovery in demand had slowed in May and June because of the second wave of the pandemic that led to restrictions being imposed across many states. However, demand recovery gained momentum from July. In fact, petrol demand reached an all-time high in October 2021, as festivals boosted mobility and economic activity. Preference for personal mobility may continue in the second half of FY22, driving petrol consumption. That said, the spread of the Omicron variant of coronavirus and restrictions to contain it remain a monitorable.

Demand for most petroleum products other than diesel and aviation turbine fuel (ATF) is likely to recover to pre-Covid levels in FY22. Recovery in diesel demand is slower than anticipated at 9 percent YoY (April-November), against a decline of 19 per cent in the corresponding period last year. Subdued demand amid the second wave and the monsoon season capped growth.