India's demand for petroleum products is likely to increase by a mid-single-digit percentage in the financial year ending March 2024, following a 10 per cent post-pandemic recovery in 2022-23, according to Fitch Ratings.
Contributing Factors to Sales Growth
Both petrol and diesel sales recorded robust 4-6 per cent increases in the first nine months of 2023-24, fuelled by heightened economic activities in the agriculture and power sectors, coupled with a surge in holiday travel and auto sales.
Refiners' Margins Outlook
Fitch said it expects Indian refiners' gross refining margins (GRM) to moderate during 2024-25 from the strong levels expected in 2023-24, but remain above mid-cycle levels.
By 2025-26, it foresees a shift closer to mid-cycle levels, but remaining resilient, bolstered by the escalating demand for end-products.
Crude Supply Mix and GRMs
"The gradual normalisation of the crude supply mix away from Russian imports is likely to narrow GRMs, although we expect margins to stay strong, supported by the rising demand for end-products," the rating agency said.
In the upstream segment, domestic oil and gas production has modestly increased, driven by a 5 per cent rise in gas production in the first nine months of 2023-24.
"We expect production to continue to rise moderately as technological investments in enhanced oil recovery techniques will offset natural declines," the rating agency said.
Capex Trends in Oil and Gas Sector
Fitch forecasts the oil and gas sector's high capex intensity to continue in the medium term, particularly with upstream companies investing in production enhancement.
In the downstream segment, Hindustan Petroleum Corporation Limited should maintain higher capex due to planned investments by its subsidiary, HPCL Rajasthan Refinery Limited.
The capex of other oil marketing companies, including HPCL-Mittal Energy Limited, should be minimal as they have completed their expansion projects, it said.
India, the world's third-biggest oil importer and consumer, is dependent on crude oil from various sources in the global market to meet its domestic demand.
