India's domestic oil product sales rose 4.1 percent in May from a year earlier, the slowest pace of growth in 2008, as sales of transport fuels surged but costly fuel oil and naphtha declined sharply. Sales of diesel rose 16.6 percent, while petrol rose 15.1 percent, as dealers stocked heavily before the government raised prices by about 10 percent in the first week of June.
As dealers reduce inventories to normal levels, sales are likely to dip in June, while the increase in retail prices is not expected to have a significant impact on demand. Diesel sales were also boosted as the fuel was cheaper than fuel oil, the price of which is not controlled by the government, encouraging power producers to switch.
India's government sets the price of petrol, diesel, cooking gas and kerosene to control inflation, while rates for other products, such as fuel oil, naphtha and jet fuel, are market determined. In its latest monthly report, the International Energy Agency marginally lowered its growth forecast for India's oil demand in 2008 to around 3.1 million barrels a day, a growth of 3.9 percent over 2007, to reflect the effects of the latest fuel price hike.
"As long as India's buoyant economic expansion continues, the price hike will at best slow down the pace of demand growth, rather than trigger a fall in absolute terms," it said.
"A significant portion of Indian motorists, those belonging to the country's emerging middle classes, who are supporting the brisk expansion of the automotive market, will arguably be able to absorb the increase," it added. India expects domestic demand for oil products to grow at a compounded annual rate of 2.9 percent to 132 million tonnes in 2011/12.
Jet fuel sales slowed because of higher prices, officials said, while fuel oil sales fell 12.5 percent and naphtha sales were down 9.8 percent from the same month last year. Crude oil imports by Asia's third-largest oil consumer were down 2.3 percent to 10.12 million tonnes, or 2.4 million barrels a day, in May compared to same month last year.
Oil product imports fell 3.7 percent as private players cut purchases. Naphtha imports during the month declined by 28.2 percent while those of diesel were up 184 percent. Hindustan Petroleum Corp's 110,000-bpd Mumbai refinery was shut in May for maintenance and addition of clean fuel units. Oil product exports during the May were down 20.2 percent to 2.79 million tonnes due to domestic demand.