June 5, 2022 [Argus] – Indian state-controlled refineries operated at maximum nameplate capacity in May because of firmer refinery margins and increased demand for transport fuels during the summer period, which typically lasts until June.

IOC, India’s largest refiner by capacity, ran at about maximum capacity last month, according to market participants close to the refiners. Hindustan Petroleum’s 190,000 b/d Mumbai and 166,000 b/d Visakhapatnam refineries operated at 100pc, while MRPL’s 300,000 b/d Mangalore refinery also operated at maximum capacity.

State-controlled Bharat Petroleum’s 310,000 b/d Kochi, 240,000 b/d Mumbai and 156,000 b/d Bina refineries also operated at maximum capacity. But Mumbai will have a partial maintenance shutdown in the second week of this month, a market participant said.

India’s transport fuel demand in May rose from the previous month in May and way above a low base during the Covid-19 affected May 2021, according to preliminary data from the state-controlled refiners that control around 90pc of the domestic fuel market. Diesel demand was up by 1.8pc and gasoline up by 8.2pc from the previous month and by 39pc and 56pc respectively from a year earlier.

Jet fuel demand in May more than doubled from a year to around 137,000 b/d, which was 7.5pc higher than in April.

Daily domestic airport footfall averaged about 733,000/d in May compared with an average of 682,000/d the previous month, according to Argus estimates based on daily traffic data published by the civil aviation ministry. This serves as an indicator for jet fuel consumption, which has been steadily increasing.

Domestic fuel demand, gasoil crack spreads and refinery margins are higher, although refineries are unable to capitalise on this because of a likely drop in profits from the retail sector. Finance minister Nirmala Sitharaman on 21 May announced an excise duty reduction, which helped in lowering retail prices, of 8 rupees/litre ($0.10/l) and Rs6/l on gasoline and diesel respectively.

Dealers are unhappy with the current retail prices and an excise duty cut on gasoline and diesel by the Indian government is likely to only help consumers, another market participant said.

Dealers across 24 states adopted a ‘no purchase’ policy on 31 May from oil marketing companies to highlight their financial stress, as their commissions have not been revised since 2017 despite increased motor fuel prices, said the Delhi Petrol Dealers Association, an industry body for oil dealers. Dealer margins should be revised every six months based on an earlier agreement, it argued.

Asian gasoline margins have fallen with a build in Singapore light distillate inventories. Singapore stocks rose sharply by 1.717mn bl to a three-month high of 15.461mn bl in the week ending 25 May, as Chinese imports rose by about 70pc from a week earlier to 1.8mn bl.

Asian gasoil margins rose to a new record high of $49.76/bl after the announcement of EU’s partial embargo on Russian oil imports. The arbitrage to ship Asian gasoil to west of Suez could be workable now with Europe’s strengthening prices, lending strength to Asian markets.

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