SINGAPORE: India exports of August-loading diesel cargoes are expected to hit 2.365 million tonnes, the highest monthly volume so far this year, as refinery expansions lead to a surplus of the fuel and monsoon rains curb domestic demand, industry sources said.
The flood of Indian cargoes will drag on Asian gasoil margins that are mired near one-month lows as demand elsewhere in the region also remains weak.
"The spike in exports is due to heavy monsoon season, which has reduced domestic consumption," an India-based source said.
Heavy rains over the June to September monsoon season typically dent India's demand for diesel, which is used to pump water from wells to irrigate farmlands during the dry season. Diesel accounts for a third of India's fuel consumption.
India's private refiners Reliance Industries and Essar Oil as well as state-owned refiner Mangalore Refinery and Petrochemicals Corp likely have a total of at least 2.365 million tonnes of diesel lined up for loading in August, industry sources said on Friday.
This is the highest since December 2012 when India exported 2.546 million tonnes, according to official numbers from the country's Petroleum Planning & Analysis Cell.
The refiners likely shipped at least 2.1 million tonnes in July, industry sources said, up more than 20 percent from June's 1.697 million tonnes. Official numbers only date back to June.
A slowdown in the global economy has also been hampering diesel consumption in many countries, including India, as the fuel is largely used in the industrial sector.
The start up of a new refinery in Jubail is expected to mop up European diesel demand, forcing Indian barrels to stay in Asia and depressing gasoil margins in the region further next year, traders said.
An expected slowdown in Saudi Arabia's demand after the peak summer season ends in September will also hurt margins.
REFINERY EXPANSION
Higher diesel exports from India are partly due to an expansion in the country's refining capacity, traders said.
Essar Oil's Vadinar refinery and MRPL's New Mangalore refinery have expanded capacity in the past two years, while BPCL is expected to complete expansion projects at two refineries by 2015.
As a result, state-owned refiners have not imported any diesel since August 2012 and have sourced less from Reliance, increasing the latter's exports, industry sources said. Some new refineries operating at full tilt have also added to the country's exports.
The 120,000 barrels-per-day (bpd) Bina refinery, operated by Bharat Oman Refineries Ltd, and the 180,000 bpd Bathinda refinery in northern India, operated by Hindustan-Mittal Energy Ltd, are both running at full capacity, sources said. The refineries were commissioned over 2011 to 2012.
"Unless the domestic demand goes up tremendously, I doubt national oil companies will ever need to import diesel so you'll likely see more and more exports from the private refiners," an India-based source said.
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