India's crude oil imports to drop in May as lockdown restrictions hit oil demand: Report

India's crude imports and refinery outputs remained robust in April as refiners honoured all previous contracts amid rising cases of Covid-19. However, the impact of regional lockdowns became visible only in the later part of April and early May.

"Just like last year, India's refiners had been slow to respond as crudes were bought in advance. There was also uncertainty over demand weakness as different states took on measures of varying restrictions to contain the spread of coronavirus," said Lim Jit Yang, advisor for Asia-Pacific oil markets at S&P Global Platts Analytics.

"But as they started to realize the severity of demand impact from lockdown measures, they are expected to reduce runs and some have already done so as sales of the first half in May turned out to be very weak," he added.

India's oil product demand fell 9.4% to 17 million mt in April over March volumes, and demand in May is expected to decline even further month-on-month, S&P Global Platts Analytics said in its report.

India has an installed capacity of over 249.36 million tonnes per annum (mtpa) across 23 refineries, making it a major refinery hub in Asia.

Impact of lockdown restrictions imposed by several states have started showing as oil demand has dipped in the world’s third-largest oil importing nation.

"The average run for refineries in India was 97% in April compared with 99% in March, the latest survey of the country's oil ministry showed. However, run rates were higher from about 72% a year earlier," the report said.

In April, state-run refineries recorded a 98% run compared with 61% a year earlier and 106% in March. The flagship state-run refiner Indian Oil Corp., or IOC, recorded an average of 104% combined run for all its nine standalone refineries in April compared with 53% a year earlier and 100% in March, it added

"Refiners in India have had to reduce utilization rates given the demand hit in the domestic market following the latest wave of COVID-19. May numbers are likely to show a larger impact on refinery operations, as this is the month when daily COVID-19 cases peaked," the report said, quoting ING Economics said in a research note.

The market is getting a better idea of the impact the latest wave of COVID-19 has had on domestic oil demand, with IOC saying that its gasoline and diesel sales had fallen by around 15%-20% due to the latest wave, it added.

However, India is expected to witness sustained growth after June.

“India's oil demand is expected to witness a growth of 260,000 b/d year on year in the first half of 2021, and 390,000 b/d year-on-year in H2. Demand in H2 will be 700,000 b/d higher than H1, driven by a more broad-based pickup in economic activity amid widening vaccination rollout," the statement added.