Trailing oil demand in India shows economy not fully recovered

Operations across 23 refineries nationwide were at 77% of capacity in May, according to oil ministry data. While that was an improvement from a low of 72% in April, when stay-at-home orders decimated fuel demand and filled storage tanks to the brim, it was still well down on the 102% recorded a year earlier. The amount of crude processed, also known as refinery throughput, was almost 25% lower year-on-year last month.

Across India, restrictions on everything from the movement of people to business operations put in place on March 25 pummeled demand for transportation and industrial fuels, placing Asia’s third-largest economy on course for its first annual contraction in more than four decades this year. Now, despite the reopening of factories and the resumption of domestic flights, fuel inventories built up during the more than 10-week lockdown remain stubbornly high.

“We still have that 90% to 95% storage capacity occupied and we have to tone that down slowly,” said R. Ramachandran, director of refineries at Bharat Petroleum Corp. “We will be calibrating our refinery runs to be consistent with the demand and try to deplete the products in tanks to avoid unnecessary inventory carrying cost.”

Since India started reopening, demand has improved dramatically as cars and trucks took to the roads and people returned to their offices. Still, a complete recovery could still be months away as Covid-19 infections continue to rise in the world’s second-most populous country. Lasting changes due to the virus — such as a drop in international travel — will make it tough to quickly get all the way back to pre-virus levels of fuel consumption.