Oil will return to a starring role in India

 Platts Analytics expects India's oil demand in 2021 to recover to slightly above the level of 2019, with growth of 465,000 barrels per day in the year

Oil will return to a starring role in India. The car-centric society is set to see oil demand bounce back strongly in 2021 helped by fiscal stimulus as it leaves Covid-19 in its rear-view mirror. Any shift away from fossil fuel towards cleaner energy will be slow going.

Oil’s importance to India’s needs is not necessarily a risk since energy security goes both ways. India is unabashedly reliant on oil and is a key buyer of crude from big suppliers like Saudi Arabia and Iraq, while the OPEC producers equally depend on India’s appetite for Middle East grades. The relationship is mutually beneficial and the ties between India and top producers are only getting closer.

A 1.2 million barrel per day (b/d) mega-refinery is due to start operations in the middle of the decade with the help of Saudi Arabia’s state-owned behemoth Saudi Aramco and the United Arab Emirates’ national oil company ADNOC.

Meanwhile, a potential Aramco joint venture with Reliance Industries (RIL) could get back on track in 2021. Reliance has received clearance to raise its export capacity of its export-focused Jamnagar refinery by 17 per cent to 820,000 b/d and aims to hit close to 2 million b/d by the end of the decade. With a guaranteed supply of heavy sour Saudi crude into the plant it would be a win-win.

In the meantime, India’s own appetite for road fuel – namely diesel and gasoline – is set to come roaring back. S&P Global Platts Analytics sees the economy growing 9.3 per cent this year after contracting 7.7 per cent in 2020, as vaccines help return life closer to normal and a $35 billion package designed to improve employment and industry provides a timely boost.

Platts Analytics expects India's oil demand in 2021 to recover to slightly above the level of 2019, with growth of 465,000 barrels per day in the year, after declining by 455,000 barrels per day in 2020.

Diesel demand will be the biggest driver as the energy-intensive industrial sector recovers quicker, assisted by a rebound in the commercial vehicle segment.

With diesel accounting for about 40 per cent India's oil products basket, the demand recovery has already provided enough reason for all state-run and private refiners to lift operating rates to around 100 per cent of their capacities.

Gasoline output, a notable sidekick to diesel in India, has also shown strong signs of life, climbing to a 14-month high in December.