India’s Oil Demand Set To Rise In 2022, Unfazed By Inflationary Risks

Containment of Covid-19 cases, improved mobility, and recovery in the industrial sector, will support India’s oil demand in 2022

A petrol droplet falls from a fuel pump at a gas station. (Photographer: Martin Divisek/Bloomberg)  
A petrol droplet falls from a fuel pump at a gas station. (Photographer: Martin Divisek/Bloomberg)  

India’s oil consumption is set to increase this year as Covid-19 cases recede, mobility improves, industrial sector recovers and economic growth picks up pace.

OPEC expects the nation’s oil demand to grow 8.2% over a year earlier to 5.15 million barrels per day in 2022, according to the cartel’s March report. That’s equivalent to 274,564 thousand metric tonnes. The consumption rose 5.5% in 2021.

“With expected economic growth of 7.2% in 2022 and rapid containment of Omicron in the near future, oil demand is set to recover,” said the OPEC report. Gasoline and diesel are likely to be particularly favoured by the expected rise in GDP and the already recovering mobility. The industrial sector will provide support for diesel, LPG, and naphtha requirements, it said.

According to Crisil Research, demand for transportation fuels is likely to remain “largely inelastic”, supported by the ongoing recovery in economic activity.

The Petroleum Planning and Analysis Cell, under the Ministry of Petroleum and Natural Gas, expects India’s oil demand in 2022-23 to surpass the pre-Covid levels of 2019-20, at a pace fastest in five years. It pegs the overall petroleum products consumption to grow 5.5% year-on-year to 214,488 TMT in FY23 (based on revised estimates for FY22).

Aviation turbine fuel demand is expected to rise the most in FY23, followed by light diesel oil and petrol.

Inflation Continues To Bite

Oil consumption is set to grow even as prices spiked.

While Brent crude has retreated from 14-year-high of $139.13 a barrel on March 7, it’s still elevated at $117. Acuite Ratings & Research expects the Asian benchmark for oil to stay around $97 in FY23.

Crisil Research expects consumer price inflation to average 5.4% in FY23 and pegs Brent crude at an average of $85-90 a barrel during the fiscal.

According to Nomura, a “broad-based surge in food energy costs and a narrowing output gap will likely keep CPI inflation above the Reserve Bank of India’s target (2-6%) in 2022.”

The Big Picture

OPEC sees inflationary pressure and the ongoing geopolitical turmoil to weigh on the world’s oil demand.

It expects world’s oil consumption to rise 4.29% over the year earlier to 100.9 million barrels a day in 2022, compared with a growth of 6.28% in 2021.

International Economic Agency in its March 2022 report projects global oil demand at 99.7 million barrels a day in 2022, a growth of 2.1% over the year earlier. IEA lowered its forecast as surging commodity prices and international sanctions levied against Russia over its Ukraine attack are expected to appreciably depress global economic growth.

The U.S., Russia, Canada, Brazil, Kazakhstan, Guyana and Norway are seen to be non-OPEC oil supply drivers in 2022, while production is expected to decline in other countries, mainly in Indonesia and Egypt, OPEC’s monthly report said. India’s oil output is expected to increase 2.2% year-on-year to 0.77 million barrels a day in 2022, it said.