(Bloomberg) — India’s diesel market is losing momentum as the economy slows and consumption patterns shift in the world’s third-largest oil importer.
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Sales of gasoline used to power trucks and farm equipment were 7.64 million tons in October from a year earlier, according to preliminary oil ministry data. In the first 10 months of 2024, prices grew by only 1.8%, which is the slowest pace since 2020, when pandemic closures caught up with demand.
Diesel makes up about four out of every 10 barrels of oil consumed in India, and the softening comes as signs of weaker purchases have been seen in China and Europe. That could be a headwind for crude prices, with investors also dealing with market problems thrown by OPEC+ supply policy, the US presidential election, and prospects of a global oil glut by 2025.
“Consumption of goods in small towns and cities in India has not grown at the pace expected,” said R. Ramachandran, former director of refineries at Bharat Petroleum Corp Ltd. “This is likely to have an impact on the movement of trucks for the transportation of goods, which hurts the demand for diesel. Also, the rains this year have been extended, which has also added pressure to the sale of diesel to farms.”
The lackluster demand for diesel last month is contrary to patterns seen in other key fuel products. Gasoline sales fell 8.4% in October year-on-year to 3.4 million tons, while jet fuel prices increased 8.6% to 751,000 tons.
“The oil demand profile in India is changing, with a significant shift from diesel to gasoline,” said Esteban Moreno Cots, senior demand analyst at Kpler. “This change is supported by rising consumer spending, and a growing middle class.”
For the full year, diesel demand is expected to grow by 2.2%, followed by 2.5% in 2025, according to Kpler. “We’re seeing a moderation in growth compared to post-pandemic recovery,” he said.
Slow Growth
Although India’s economic growth has slowed, it remains one of the strongest players in emerging markets, a trend that greatly benefits diesel consumption. Gross domestic product rose 6.7% in the three months to June, the slowest pace in five quarters, and banks including Goldman Sachs Group Inc. they have been lowering GDP forecasts. Among other signs, industrial production contracted for the first time in nearly two years in August.
In China, the world’s largest oil importer, demand for diesel has been shrinking due to the spread of liquefied natural gas-powered trucks, as well as the towing problem. In Europe, on the other hand, futures have recently traded in contango, a bearish structure in which immediate prices are cheaper than those of the futures.
India’s diesel demand depends on the health of the economy, according to Ramachandran. Also, there is no major threat yet from alternatives such as LNG in trucking, which is in its early stages in the area, he said.
(Adds the GDP perspective in the eighth section)
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