The oil sector has been under pressure with demand falling over the last year and sales contracting as a result. The petroleum consumption has slipped amid high retail fuel prices and weakening economic growth as well as decline in furnace oil demand due to shifting power generation from furnace oil and diesel to coal, LNG and other alternative sources.
As per the latest economic survey, the petroleum consumption in the country declined from16.7 million tons in 9MFY22 to 13.1 million tons in 9MFY23 – or a fall of 22 percent year-on-year.
Petroleum consumption remained 23.1 million tons in FY22. Latest data from Oil Companies Advisory Council (OCAC) shows that the 11MFY23 petroleum consumptions stood around 15.26 million tons; and with average monthly petroleum sales of 1.3 million tons over the last 5 months, petroleum sales for FY23 are expected to be not more than 17 million tons – a decline of 26 percent year-on-year.
As mentioned in this space many times and now also highlighted by Economic Survey FY23 that the declining trend is likely due to decrease in demand for FO, HSD, MS, and HOBC, representing more than 95 percent of the total demand. The economic survey shows that the decline in demand was witnessed in all sector including the transport and power sectors that are major petroleum consumers, covering around 90 percent of total demand. The only increase witnessed was in Jet Fuel’s sales, which makes a negligible portion of the total consumption. The illustration shows the breakup of sector wise consumption along with the year-on-year growth during the 9-month period.
Majority of the consumption of petroleum products in the country is fueled by imports, the three key products – FO, MS and HSD are also the three key imports besides the crude oil. The decline in petroleum consumption thus was led by decline in imports as well. Total petroleum import volumes in 9MFY23 were down by 33 percent year-on year, with furnace oil imports falling by more than half. Only jet fuel incurred an increase in imports during the period.
With the budget mixed for OMCs - as the introduction of bonded storage bulk facility is theoretically positive, but the windfall tax is negative – the sector dynamics are not sanguine. While the decline in volumes could take a breather with recent price fall, increased smuggling of Iranian fuel, the OMCs calling for reduction in minimum tax, smaller OMCs fighting OGRA over unfair pricing as well as the recent news about the exit of an MNC do not make the sector’s prospectslook promising.
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