By May 12, 2017 Read More →

Opinion: India’s gasoline boom stalls


Gasoline use in India is slowing, and may have been compounded by the demonetization of higher value Indian currency. DNA India photo.

Retail gasoline prices rose by around 10 per cent between January 2016 and January 2017

By John Kemp

LONDON, May 12 – India’s gasoline consumption has flattened out in recent months after tremendous growth between 2014 and 2016.

India’s motorists consumed 581,000 barrels of gasoline per day between February and April, according to the Petroleum Planning and Analysis Cell at the Ministry of Petroleum and Natural Gas.

Gasoline consumption rose by 4 per cent compared with the same period a year earlier, a sharp slowdown from the 14 per cent increase between 2015 and 2016.

Gasoline consumption growth has been slowing since the middle of 2016 after surging for the previous two years.

Consumption growth for most other fuels used for cooking and transportation has also been slowing for the last nine months.

Demand for liquefied petroleum gas and kerosene used for cooking, heating and lighting as well as diesel used for transport all show signs of levelling off or actually falling in the first four months of 2017.

The slowdown may have been compounded by the demonetisation of large-denomination bank notes announced at the start of November as part of the government’s anti-corruption campaign.

Demonetization resulted in a sharp slowdown in sales of the cheaper motorcycles favoured by first-time buyers in rural areas.

Rapid expansion in motorcycle ownership has been one of the major factors driving increases in gasoline demand (“India’s new motorcycle owners drive gasoline boom“, Reuters, Sept. 2016).

Rising crude oil and refined fuel prices over the last year are also likely to have constrained the growth in consumption and other fuels.

Retail gasoline prices rose by around 10 per cent between January 2016 and January 2017 while diesel prices climbed by almost 8 per cent, according to data from the Ministry of Petroleum and Natural Gas.

India’s emerging urban and rural middle class is relatively sensitive to increases in the cost of fuel so rising prices have curbed demand growth.

Despite the recent slowdown in consumption growth for gasoline and other fuels it is too early to determine whether the deceleration is temporary linked to demonetization and price rises or something more lasting.

But India has been one of the most important sources of oil demand growth during the slump so any prolonged slowdown in consumption growth would make the task of global market rebalancing harder.

(Editing by David Evans)

John Kemp is a Reuters market analyst. The views expressed are his own.

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