India, the world’s third-largest oil importer and consumer, turned from the worst-performing demand market in July into one of the fastest-growing fuel demand markets in November, lending support to oil prices together with strong demand in China and progress with vaccine development and rollout.  

The rebound in one of the world’s biggest oil growth drivers before the pandemic highlights the two-speed global oil demand recovery, with Asia driving higher consumption and consequently, oil prices, while Europe and the United States are reeling from renewed restrictions to fight record Covid-19 infections. India’s recovery is also indicative of the immediate support that strengthening oil demand in the key Asian markets, China and India, gives to oil prices, unlike vaccine news, which contains more forward-looking expectations of mass vaccinations boosting economies and hence, oil demand. 

In India’s case, fuel demand has been boosted by one of the effects of Covid-19 on customer preferences—people avoid public transportation and prefer the comfort and relative isolation from other people in their own vehicles. India continues to fight the pandemic and still has some restrictions in place on domestic bus and airline travel. This additionally boosts demand for gasoline and diesel for private vehicles. 

In four months, the trend in India’s fuel demand has dramatically changed. 

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In July, Indian refiners were cutting processing rates because fuel demand—up from the lows in April and May—had slowed as fuel prices were higher and parts of India were again under local lockdowns, while the monsoon rain season was also stalling economic activity and transport. 

Shell’s chief executive Ben van Beurden said on the supermajor’s Q2 earnings call in July that India was the worst-performing market in terms of demand, while China continued to be resilient. 

“The worst-performing market is India, 45% down. So, we are dealing with a very wide tapestry of market recovery archetypes,” van Beurden said.

Four months later, Indian Oil Corporation (IOC) increased crude oil throughput of its refineries to 100 percent in November 2020, as consumption of all petroleum products has almost reached pre-Covid levels, the country’s biggest refiner and fuel retailer said earlier this month. 

“As we get closer to the Covid-19 vaccine roll-out, the fundamentals of the economy being strong, we see a rapid V-shaped recovery in the overall consumption of petroleum products,” IndianOil chairman SM Vaidya said.

Apart from IndianOil, two other state-held refiners now operate at 100 percent refining capacity, sources familiar with the matter told Bloomberg this week.

Recovery signs had already emerged in October, with India’s consumption of petroleum products in October 2020 growing by 2.5 percent compared to October 2019, the first annual growth in the 2020-21 financial year, data from India’s Ministry of Petroleum and Natural Gas showed. Consumption rose by 14.8 percent from September to October, indicating a boost in economic activity, the ministry said. 

Currently, road vehicle traffic in India is surpassing pre-COVID levels, said ICRA Research, whose biggest shareholder is credit rating agency Moody’s. 

“This has been supported by the gradual unlocking of the economy, the recovery in the industrial and services sectors, limited availability of public transport (both bus and passenger rail) and preference for social distancing in personal mobility,” ICRA said in a report this month. 

The rebound in fuel demand in India, as well as in China, is in stark contrast with the demand patterns in major developed economies that have been battling the resurgence of the coronavirus. 

In the world’s top petroleum consumer, the United States, gasoline sales during the Thanksgiving week dropped by a staggering 8.4 percent, or by nearly 185 million gallons, from the previous week, bringing consumption to the lowest level for a Thanksgiving Week in 23 years, going back to 1997, according to the weekly survey of retail fuel stations by IHS Markit company OPIS. 

Until oil demand in major developed economies recovers to a more sustainable level, immediate oil price gains will hinge on demand from the major growth drivers in Asia, India and China.  

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