Oil prices are likely to record their worst week since March 2021, as demand for oil in India drops to a 9-month low.
India is regarded as the world’s third-largest importer of oil but as a result of the current COVID-19 Delta variant plaguing the country, which has caused the government to impose new lockdown restrictions, the nation has seen its oil demand drop to 3.9 million barrels per day (bpd) of crude oil in June, down by 7% compared to the imports in May.
What you should know
- The June 2021 decline in crude oil imports from the world’s third-largest oil importer did not come as a surprise, considering that April and May were the months in which refiners likely nominated oil cargoes for June. This period coincides with when the country saw the peak of its COVID crisis, with grim records in daily new cases, hospitalizations, and deaths.
- The country’s government decided against a nationwide lockdown, fearing economic collapse but the most populous cities and regions were placed under regional lockdowns and various forms of curfew, which dragged down demand for road transportation fuels gasoline and diesel.
- Indian fuel demand plunged by 9.4% in April compared to March due to the COVID crisis. Fuel demand in India continued to slump in May, with gasoline sales down to a one-year low and diesel consumption dropping to the lowest in seven months in the first two weeks of May.
- Due to the increase in COVID-19 cases, refiners reduced run rates and nominated less crude for arrival in June as inventories grew. For example, India’s top refiner, Indian Oil Corporation (IOC), had reduced its capacity utilization to 84% in the middle of May, compared to 100% last November when demand was rebounding.
- Other factors affecting oil prices include Saudi Arabia and the United Arab Emirates moving closer to a compromise that would allow OPEC+ to go ahead with increasing oil production in response to rising oil prices. The two have reached an agreement that would see the UAE’s oil production baseline increased from 3.17 million bpd to 3.65 million bpd which means that more supply of oil will be coming to the market.
With the addition of more OPEC+ barrels to global supply and India’s oil imports dropping by 7% in June as a result of rising COVID-19 cases, the price of oil is set to be bearish for the short term.
For Nigeria, this is good news as the landing cost of oil will reduce, thereby decreasing the cost pressure on NNPC to meet up with subsidy obligations. The NNPC Group Managing Director (GMD), Mele Kyari has stated that the landing cost of oil stands at N232, which is below the current pump price by 28.45% or N66, to stand averagely at N166. Reduction in the landing cost will help NNPC greatly in meeting up with subsidy obligation.
Brent oil is currently trading $73.84 a barrel, up 0.50% and U.S oil is trading $72.13 a barrel, up 0.67%, as of the time of writing this report.