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New Delhi, March 18, 2020
Blindsided by COVID-19, domestic demand for petrol, diesel, jet fuel and shipping fuel has fallen by over 10 per cent in the first two weeks of March even though the global oil market remained favorable for Indian consumers with sharp fall in both crude and petroleum product prices.
Sources in public sector oil marketing companies said that though subdued global oil markets reduced product prices, restrictions on travel following the COVID-19 outbreak slowed consumption with pump sales of petrol and diesel falling by almost 11 per cent between March 1 and 15.
The widespread route overhaul by airlines and shutdown on certain routes also reduced the sale of ATF by a similar margin. COVID-19 related restrictions have also impacted sales of bunker fuel for the first time in many years as ships also lay anchored.
"The deep seated slowdown has got wind from the ongoing virus scare and has slowed business activities further. So, even though fuel prices are reaching their lowest levels, there isn't enough demand for the product at the moment," said the source quoted earlier.
According to a research report on the oil sector by CRISIL, the COVID-19 pandemic has made the already subdued demand outlook for the oil sector even grimmer.
"The spread has led to demand disruption in major crude oil-consuming nations. With COVID-19 spreading fast to other geographies, the impact could be felt in stalling trade and manufacturing globally, affecting oil consumption from the road and marine transportation. Inter-country travel restrictions is choking oil demand from the airlines sector as well," the report has said.
The airline industry accounts for 6-8 per cent of total crude consumption. As more countries are implementing bans over COVID-19 in both international and domestic travel, the impact is likely to worsen. And if the pandemic is not contained over the next 2-3 months, the consequences will be severe, the rating agency has said.
It is now estimated that oil consumption globally may grow just about at the rate it grew in 2019 or even shrink. Last year, oil demand is estimated to have risen just 0.8 million bpd compared with the average annual increase of 1.6 million bpd over the past five years.
But for India, the current scenario presents a case where crude price may main subdued for a long term. CRISIL expects crude price average of $35-40 per barrel in 2020, with downside risks.
If the spread of COVID-19 is contained, or moderates over the next 2-3 months, average crude prices could range $35-40 per barrel in 2020, with risks tilted to the downside. However, the impact on prices will depend on the extent of near-term supply increases from Saudi Arabia and Russia.