India's fall in oil demand to create 1.4m b/d supply glut: study

London, (Quantum Commodity Intelligence) - The Covid-19 outbreak in India will create a  glut of oil in the region, energy consultants Rystad said Wednesday, as demand in the world's third biggest consumer falls at the same time as OPEC+ nations increase output.

India, which is currently battling record infections of over 350,000 a day, has locked down many of its huge cities, curbing demand for oil liquids to the tune of 575,000 b/d in April and that figure is set to increase to 915,000 b/d in May, the Norway-based researchers said.

But that reduction, dovetailed with scheduled increases in supply, is set to create a surplus of oil liquids of 900,000 b/d this month and 1.4 million b/d next.

"Our revisions to India are supported by our real-time data, which show traffic in major cities like Mumbai, Bangalore, and New Delhi plummeting to nadirs experienced during the first wave of lockdowns in India a year ago," Rystad said.

"On top of night and weekend curfews, many states have imposed strict lockdowns overnight, shutting down non-essential businesses and limiting public transport," it added.

The researchers estimated Mumbai traffic at 45% of normal pre-pandemic levels compared to 65% in the first wave in April 2020, while overall traffic levels are estimated at 87%.

So far the country has avoided a national lockdown, which would curb demand sharply.

But as it stands the researchers still expect the country to consume 3.93 million b/d, down from previous estimates of 4.84 million b/d.

"As infections continue to rise and its health system is overwhelmed, India's oil demand could lose more ground going forward, making further downgrades possible, both on magnitude and duration," said Louise Dickson, senior oil markets analyst at Rystad Energy.

Gasoline cracks in Asia have been on the slide since the Indian outbreak, with month ahead cracks only recently recovering to a one-week high on bigger than expected gasoline draws in the US and Singapore.

But nearby demand for gasoline remains very weak with cash deals executed Thursday indicating a lower cash differential to the curve.  

Gasoline cracks for spot loading versus June cash Brent stood at $6.39/b on Thursday, $0.40/b lower than May cracks versus July cash Brent.

On Wednesday that differential was just $0.21/b.