Diesel demand to decline in March ending quarter

Singapore, Jan. 11: Diesel demand in India might drop in the first quarter as a government decision to abolish highvalue currency bills is expected to hurt small businesses, analysts said.

Diesel demand is expected to grow only two per cent in the first quarter of 2017 compared with a year ago, less than half of the five-per cent growth rate seen in the first 10 months of 2016, said Tushar Tarun Bansal, director of Singapore-based consultancy Ivy Global.

In November, Prime Minister Narendra Modi scrapped `500- and `1,000notes as part of a crackdown on tax dodgers and counterfeiters. Nearly 90 per cent of transactions used to be in cash in India, which was gripped by a shortage of currency after this sudden decision.

“The cash crunch is affecting sales of two- and three-wheelers, and liquidity has not been enough to sustain small businesses, which are struggling to survive,” said a fuel trader from India.

Demand for oil product may be lower than projected as consumers have been stocking up fuel as an avenue to spend the `500 and `1,000 notes as exceptions were given to purchase diesel and gasoline at pump stations temporarily, a source with an Indian refiner said.

“But I think this (dip in demand) will be temporary as bigger businesses are not affected and people will return to buying cars (later in 2017),” the refiner source added.

Asian refiners’ profit margins from producing diesel in 2017 may rise for the first time in four years as demand for the fuel improves in the infrastructure, construction, mining and oil and gas exploration sectors.

A return to normal winter conditions will stabilise the finances in some Opec countries. — Reuters