Platts cuts India’s 2021 oil demand by 28%; sees crude topping $70

However, once the lockdowns are lifted, Platts expects the pent-up demand to get released, which in turn will act as a catalyst for economic growth

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S&P Global Platts has cut India’s demand for oil & gas amid the second wave of Covid cases that have triggered lockdowns across key states since the past few weeks. For 2021, it now pegs the oil demand growth at 350,000 barrels per day (b/d), down from a forecast of 485,000 b/d made in February – translating into a fall of nearly 28 per cent. India’s city gas demand, Platts said, could drop by 25 – 30 per cent in the coming months.

“Since the dramatic escalation of new cases in mid-to-late February, we have revised down India’s oil demand forecast by 135,000 b/d for 2021 – with downward adjustment of 175,000 b/d for April, 760,000 b/d for May, 830,000 b/d for June and 360,000 b/d for July – down from a forecast of 485,000 b/d made in February,” said Kang WU, head of global demand and Asia analytics at S&P Global Platts.

However, once the lockdowns are lifted, Platts expects the pent-up demand to get released, which in turn will act as a catalyst for economic growth and trigger a demand uptick for oil & gas in the country.

“April demand has been down month-on-month, and we expect another decline in May, but recovery in the second half of the year remains in sight. Oil demand in H2-2021 is expected to be 650,000 b/d higher than the first half of 2021 (H1-2021), driven by a more broad-based pickup in economic activity amid widening vaccination rollouts,” WU said.

Besides India, the demand forecast for 2021 has been revised down for Western Europe and Latin America due to more restrictions stemming from second and third waves of Covid. Brent oil prices, WU said, will peak in mid-2021 at over $70 per barrel.

At the global level, Platts expects global oil demand growth at 5.5 million b/d in 2021. “We expect sequential on month global oil demand to grow strongly by more than 8 million b/d over May to August, due to seasonal uplifts along with normalisation from recent lows in demand,” WU said.

However for 2022, Platts has pegged the global oil demand at 4.4 million b/d, 20 per cent lower compared to 2021. Upward revisions are mainly for the US, Europe, and China. Broadly speaking, global demand will have recovered to pre-pandemic levels in 2022, though the notable exception for impairment will continue to be jet fuels.

Inflation scare

Elevated commodity prices, including that of oil, analysts say, are likely to fan inflation going ahead, which will be detrimental for India. Investors fear that a surge in inflation, especially in the US would force central banks to raise interest rates earlier-than-expected and trigger a flight of capital from emerging markets (EMs), including India.

“Investors should prepare for the biggest inflation scare since the early 1980s as pent-up demand is triggered as the American economy normalises. It remains the case that the timing of the severity of the inflation scare will be determined by what happens with inflation expectations. And they have risen over the past week as a result of the ‘shockingly’ weak jobs data and the surge in April CPI inflation,” wrote Christopher Wood, global head of equity strategy at Jefferies in his latest weekly note to investors.

2nd wave weighs on global outlook

Demand in the second quarter is still about 4 mn bpd below the same period in 2019, according to both IEA and Opec (the EIA sees the deficit about 3.4 mn barrels). And a closer look at the latest outlooks shows reasons to remain cautious. Two of the three (the IEA and EIA) have cut their forecasts of oil demand growth this year. Oil climbed above $64 a barrel on Friday, aided by a recovery in equities and a softer dollar. But prices were still headed for a weekly fall with the spread of Covid-19 in Asia, especially India, menacing demand. “The energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA. India is the third-biggest oil consumer.Agencies