Gasoil demand from India is expected to taper off in the coming months
as the monsoon season peaks and refineries complete their upgrading to meet
recent changes in specifications, trading sources said last week.
Indian state-owned refiners Indian Oil Corp. and Bharat Petroleum
Corporation Limited have together been importing more than 150,000 mt of low
sulfur gasoil every month.
For delivery in July alone, the monthly import of those two refineries
hit 340,000 mt of gasoil, which trading sources said is a massive amount and
has been supporting premiums for both the 10 ppm and 500 ppm sulfur gasoil
grades.
However, with monsoon season already hitting India and expected to peak
in a month, the import volumes are expected to drop, said industry sources
based in India.
"Now that the monsoon season has set in, we are expecting actual demand
to go down, especially gasoil demand for irrigation," said a trading source.
India's monsoon, which begins in June and normally lasts until September,
curbs public transportation as well as fuel use by the agricultural sector. A
portion of the country's power requirements could also be met through
hydroelectric generators.
While the southwest monsoon has intensified in southern India and is seen
in some parts of central India, it is expected to hit the northeastern and
west coast states this week. Once it peaks in about three weeks, demand for
gasoil is expected to come down, trading sources said.
When that happens, differentials for the low sulfur gasoil grade might be
affected, said Singapore-based traders.
"We have to wait and see the monsoon rain levels this year ... but yes,
India has been the main outlet ... we can expect the premiums for 500 ppm and
10 ppm to soften," said one trader, referring to the rainfall being below
normal levels so far with the monsoon said to be behind schedule by a week to
10 days.
Refiners and sellers had been struggling to place the low sulfur gasoil
for most of last year and early this year amid a lack of arbitrage outlets.
But it started getting some support from Australia, which was facing refinery
turnarounds, and India where refiners have been rushing to complete
upgradation to produce gasoil equivalent to Euro III specifications in order
to meet the October 1 deadline for completing the rollout Euro III fuel
equivalents across the country.
India implemented new gasoline and diesel specifications from April 1,
which saw 13 of its major cities switch to Bharat Stage-IV grade, equivalent
to Euro IV.
As for the phased second rollout of Bharat Stage-III, equivalent to Euro
III, 17 states are expected to be covered by June 30 and the rest of the
country by September 30.
BS-III gasoline has a maximum sulfur limit of 350 ppm and gasoil has
maximum sulfur of 50 ppm. BS-IV gasoline and gasoil have maximum sulfur limits
of 50 ppm sulfur.
The major refiners are on track to meet the changes in specifications,
but the smaller refiners are still in the process of upgrading their plants,
trading sources said earlier.
Once the refiners are on track with the changes, gasoil buying will also
come off quite a bit, said one source.
"India is not going to stop buying at least for another three months or
so ... as there is not enough production of E3 and E4 because of upgradations
still going on. But by August or September things should settle and in
September, hopefully, BPCL's Bina [refinery] will also start commercial
production," said an Indian source.
With India raising the retail price of gasoil along with other oil
products last Friday, this could also have some impact on demand for gasoil
later on, said a source with an Indian refining company. The government
announced last week that it has decided to raise gasoil prices by Rupees 2
litre ($0.043/litre).
"It will take two to three months for the impact to be apparent and a lot
of factors need to be considered ... but it could have a [downward) spiral
effect as everything transport related is using diesel," he said.
However, other trading sources were more optimistic.
Demand for gasoil has been growing steadily in the country due to
increased transportation and construction activities with more roads being
built. One source estimated the year-on-year growth in demand to be at 30%
for gasoil. "The temperatures have been soaring in summer, and a lot of
generators are being used," he added.
While part of the gasoil shortage can be met by refiners Essar Oil and
Reliance Industries, who have helped India to steadily grow as a net oil
products exporter since 2001, after decades of being a net importer, they are
limited by export-commitments of Reliance -- whose Jamnagar refinery is
export-oriented -- and limited production from Essar Oil.
Arbitrage economics to send gasoil from Asia to Europe have also been
workable in June, which has been supporting the premiums for the 10 ppm sulfur
gasoil.
So, some sources said the impact of India reducing its buying might not
be that great on the 10 ppm sulfur gasoil prices.
--Jessica Jaganathan, jessica_jaganathan@platts.com
as the monsoon season peaks and refineries complete their upgrading to meet
recent changes in specifications, trading sources said last week.
Indian state-owned refiners Indian Oil Corp. and Bharat Petroleum
Corporation Limited have together been importing more than 150,000 mt of low
sulfur gasoil every month.
For delivery in July alone, the monthly import of those two refineries
hit 340,000 mt of gasoil, which trading sources said is a massive amount and
has been supporting premiums for both the 10 ppm and 500 ppm sulfur gasoil
grades.
However, with monsoon season already hitting India and expected to peak
in a month, the import volumes are expected to drop, said industry sources
based in India.
"Now that the monsoon season has set in, we are expecting actual demand
to go down, especially gasoil demand for irrigation," said a trading source.
India's monsoon, which begins in June and normally lasts until September,
curbs public transportation as well as fuel use by the agricultural sector. A
portion of the country's power requirements could also be met through
hydroelectric generators.
While the southwest monsoon has intensified in southern India and is seen
in some parts of central India, it is expected to hit the northeastern and
west coast states this week. Once it peaks in about three weeks, demand for
gasoil is expected to come down, trading sources said.
When that happens, differentials for the low sulfur gasoil grade might be
affected, said Singapore-based traders.
"We have to wait and see the monsoon rain levels this year ... but yes,
India has been the main outlet ... we can expect the premiums for 500 ppm and
10 ppm to soften," said one trader, referring to the rainfall being below
normal levels so far with the monsoon said to be behind schedule by a week to
10 days.
Refiners and sellers had been struggling to place the low sulfur gasoil
for most of last year and early this year amid a lack of arbitrage outlets.
But it started getting some support from Australia, which was facing refinery
turnarounds, and India where refiners have been rushing to complete
upgradation to produce gasoil equivalent to Euro III specifications in order
to meet the October 1 deadline for completing the rollout Euro III fuel
equivalents across the country.
India implemented new gasoline and diesel specifications from April 1,
which saw 13 of its major cities switch to Bharat Stage-IV grade, equivalent
to Euro IV.
As for the phased second rollout of Bharat Stage-III, equivalent to Euro
III, 17 states are expected to be covered by June 30 and the rest of the
country by September 30.
BS-III gasoline has a maximum sulfur limit of 350 ppm and gasoil has
maximum sulfur of 50 ppm. BS-IV gasoline and gasoil have maximum sulfur limits
of 50 ppm sulfur.
The major refiners are on track to meet the changes in specifications,
but the smaller refiners are still in the process of upgrading their plants,
trading sources said earlier.
Once the refiners are on track with the changes, gasoil buying will also
come off quite a bit, said one source.
"India is not going to stop buying at least for another three months or
so ... as there is not enough production of E3 and E4 because of upgradations
still going on. But by August or September things should settle and in
September, hopefully, BPCL's Bina [refinery] will also start commercial
production," said an Indian source.
With India raising the retail price of gasoil along with other oil
products last Friday, this could also have some impact on demand for gasoil
later on, said a source with an Indian refining company. The government
announced last week that it has decided to raise gasoil prices by Rupees 2
litre ($0.043/litre).
"It will take two to three months for the impact to be apparent and a lot
of factors need to be considered ... but it could have a [downward) spiral
effect as everything transport related is using diesel," he said.
However, other trading sources were more optimistic.
Demand for gasoil has been growing steadily in the country due to
increased transportation and construction activities with more roads being
built. One source estimated the year-on-year growth in demand to be at 30%
for gasoil. "The temperatures have been soaring in summer, and a lot of
generators are being used," he added.
While part of the gasoil shortage can be met by refiners Essar Oil and
Reliance Industries, who have helped India to steadily grow as a net oil
products exporter since 2001, after decades of being a net importer, they are
limited by export-commitments of Reliance -- whose Jamnagar refinery is
export-oriented -- and limited production from Essar Oil.
Arbitrage economics to send gasoil from Asia to Europe have also been
workable in June, which has been supporting the premiums for the 10 ppm sulfur
gasoil.
So, some sources said the impact of India reducing its buying might not
be that great on the 10 ppm sulfur gasoil prices.
--Jessica Jaganathan, jessica_jaganathan@platts.com
