IndianOil Chairman Singh: 'Demand Is Picking Up'
Energy Intelligence, Delhi   01-Jun-2020

State-controlled Indian Oil Corp. (IOC) is India’s largest refiner, accounting for 28% of the nation’s 5 million barrels per day of refining capacity and holding a 42% share of its retail fuel market. In an exclusive interview with Energy Intelligence, IOC Chairman Sanjiv Singh discusses the challenges facing Indian refiners from the current coronavirus crisis.

Q: What is the status of India’s oil demand?

A: Immediate demand is looking good. But we need to see how diesel and aviation turbine fuel demand pans out. In the short term, from April to May, we are seeing significant improvement both for gasoline as well as for diesel. There is a nearly 75% increase in volume of diesel and gasoline from April to May. If we compare with last year, same month, then gasoline should be close to 55%-60% [of last year’s demand]. Diesel is 65%-70% of last year. Demand is picking up. It had drastically gone down (PIW Apr.24'20). Our refineries were running at 40%-45%. By the end of the month, we should be closer to 80%.

Q: Do you think there is enough demand to sustain that level of refinery runs?

A: We are not unnecessarily raising the capacity. We are very closely tracking the consumption pattern. The demand is picking up. The refineries are matching the demand.

Q: In the last fiscal year, India posted a growth rate of 0.2% in product consumption. That was the weakest pace of growth in decades. Will there be growth in consumption in the current financial year?

A: Last [financial] year, until February the overall [fuel product] demand growth was 1.8% on year. But it is just one fortnight of March which resulted in such a dip in the growth. In this particular financial year [Apr 1-Mar 31, 2021], this whole quarter April-June is badly affected. For the remaining nine months to catch up and register a positive growth overall, is probably too optimistic. Our estimate is that there might be a minus 5% to minus 8% dip overall. I mean it is too early to confidently project something for the year. We don’t know how the aviation industry will respond. Diesel will be driven by all other sectors. Gasoline, we are confident will come up faster than diesel because it is largely private vehicles and there might be preference from the mass transport to individual transport.

Q: How has the lockdown impacted your crude oil import plans? You declared force majeure when lockdown began. What is the status of that?

A: When the lockdown started, a lot of things were happening globally. At that time it wasn’t clear how everything was going to emerge out. The country had just simply overnight locked down while everything was lined up. We line up at least for the 1½ to two months [ahead] and everything is loaded or ready to go. We had to very quickly cut down our procurement. And incidentally this happened while the oversupply in the market was also happening. So the crude market was already oversupplied and suppliers or crude-producing countries were under pressure to deliver as much as possible. This was happening globally. Although we could reduce or defer a couple of cargoes, we also declared a force majeure. Each contract is worded differently. We were seeing it with a different angle but we didn’t pursue it because we could manage part of our crude cargoes by diverting them to strategic reserves (PIW May1'20). By deferring a couple of cargoes we could manage that. Now I don’t foresee any requirement to procure significantly less crude.

Q: For the full financial year, will you be able to take all the contracted cargoes?

A: A contracted cargo has two portions, one is fixed volume and the other is optional volume. The percentage varies from country to country. Keeping some optional volumes gives flexibility to both the parties, to the buyer as well as the seller. As far as contractual fixed quantity is concerned, we are confident that we can take it, and the optional quantity will be driven by not only our requirement but also prices which we can fetch under the term contract compared with the spot [market]. I don’t see any major cause of worry in meeting the contractual long-term quantity.

Q: What is the impact of the 30%-50% cut in June-loading term volumes from Aramco (PIW May22'20)? Does this pose any problem for Indian refiners?

A: Not exactly. When refineries were running at abnormally lower capacity, for a month or so, we were less than 50%, we didn’t reduce our crude requirement proportionately. These were the low price months also. The procurement was more than proportionate. So I don’t see any problem from that point of view.

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