India’s fuel demand will continue to recover through the present quarter because the easing of Covid-19 pandemic-related restrictions boosts financial exercise, Fitch Ratings stated on Monday, including a caveat that this was topic to the danger of a resurgence in infections and the resultant influence on financial system and mobility.
The restoration ought to help larger throughput at most oil advertising and marketing corporations and powerful costs are anticipated to enhance the monetary profiles of upstream oil and fuel corporations.
Fitch stated it “expects India’s petroleum product demand to stay reasonably robust within the fourth quarter of the monetary 12 months ending March 2022 (4QFY22), because the easing of Covid-19 pandemic-led restrictions boosts financial exercise.”
However, restoration expectations stay topic to additional restrictions due to the danger of a resurgence of Covid-19 instances in India with the emergence of latest variants, even because the nation makes progress in its vaccination plan.
“We anticipate improved demand for petroleum merchandise to attain pre-pandemic ranges in 4QFY22 (January-March 2022), however the full monetary 12 months’s demand remains to be 2-4% beneath that in FY20,” Fitch stated.
Demand rose by 5% yoy in April-December 2021, however the total month-to-month common was about 8-10% decrease than the pre-pandemic degree at 16.4 million tonnes. This is as a result of there have been nonetheless some pandemic-related restrictions in some areas of the nation in 1HFY22.
“We anticipate the restoration to continue through to 4QFY22, topic to the danger of a resurgence in Covid-19 instances and the resultant influence on financial exercise and mobility,” it stated.
In its ‘India Oil & Gas Watch’ report, the score company stated capex is probably going to keep excessive as oil advertising and marketing corporations (OMCs) develop their refining capability and retail networks, and upstream corporations improve manufacturing.
“We anticipate secure crude oil manufacturing, which ought to marginally enhance in FY23 as upstream producers continue to spend money on exploration and improvement,” it stated. India’s pure fuel manufacturing elevated by 22% yoy in April-December 2021 and the momentum is probably going to continue over the following 12-18 months, pushed by expanded manufacturing at new fields, earlier than stabilising in FY23.
“We consider rising home manufacturing and better liquefied pure fuel (LNG) spot costs are doubtless to weigh on LNG imports through to 1HFY23. However, LNG imports ought to rise steadily over the medium-term as consumption picks up tempo,” it stated.
Core oil refining margins are doubtless to enhance in 2HFY22 (October 2021 to March 2022), as petrol and diesel spreads continue to strengthen amid the financial restoration. The 1HFY22 (April-September 2021) reported margins of BPCL, IOC and HPCL improved to USD 5.1 per barrel, USD 6.6 and USD 2.9 a barrel, respectively, on account of rebounding demand, wider gasoline spreads and stock good points.
“We anticipate the OMCs to generate regular advertising and marketing margins in 2HFY22, as they continue to move on larger crude oil costs to shoppers,” Fitch stated.
“Government cuts to gasoline (petrol) and gasoil (diesel) excise duties, in addition to to value-added tax in some states, ought to cushion retail fuel-price affordability and the OMCs’ advertising and marketing margins.”
However, record-high retail fuel costs could restrict the extent to which the modifications are handed on ought to the crude oil costs continue to rise, it stated.
India’s crude oil manufacturing declined by 3% year-on-year in April-December 2021, whereas pure fuel manufacturing rose by 22%.
The steep rise in fuel output was due to a manufacturing ramp-up on the KG-DWN-98/2 and KG-D6 deepwater tasks. Natural fuel manufacturing to additional enhance over the following 12-18 months, pushed by increasing manufacturing on the new fields, earlier than stabilising in FY23.
“Crude oil manufacturing ought to keep secure in 4QFY22, earlier than marginally rising as upstream producers continue to spend money on exploration and improvement and improve current amenities to offset the pure decline from mature fields,” Fitch stated.
The authorities elevated the home fuel worth on the final October 2021-March 2022 reset to USD 2.9 per million British thermal items (mmBtu), from an all-time low of USD 1.8 in April 2021-September 2021.
The worth is linked to costs of 4 international liquefied pure fuel (LNG) benchmarks, together with Henry Hub and National Balancing Point, within the earlier 12 months and is applied with 1 / 4’s lag.
Global fuel costs rose throughout 2021 and we anticipate international costs to keep excessive in 1Q22, pushed by excessive demand in Asia, manufacturing bottlenecks and uncertainty round Russia’s Nord Stream 2 pipeline in addition to restricted fuel in European storage amenities.
This is probably going to end in larger home fuel costs throughout 1HFY23, serving to increase profitability at upstream corporations. However, the influence on upstream corporations will be marginal, due to its low share within the income combine, Fitch stated.
The authorities’s larger worth ceiling for fuel produced from deepwater and different troublesome fields of USD 6.13 per mmBtu, from USD 3.62, is probably going to profit manufacturing at Reliance Industries Ltd’s Krishna Godavari basin area.
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