Petroleum: consumption fizzling out

After a sharp decline in July-22 and the start of FY23, petroleum sales in the country witnessed another month of year-on-year decline in August-22. Petroleum sales in August-22 were down by 22 percent year-on-year. The oil and gas sector was seen commencing the fiscal year on a weaker note with overall petroleum sales by the oil marketing sector falling by 24 percent year-on-year in 2MFY23.

The decline in petroleum sales during August and 2MFY23 were primarily due to the heavy rainfall across the country leading to floods, and massive surge in petroleum prices. The Monsoon rains and floods affected the sales of all petroleum products; Furnace oil sales were down by 35 percent year-on-year due to lower power generation from furnace oil as rains brought back the hydel power generation into the power mix. The diesel sales – down by 26 percent year-on-year - were impacted due to agricultural devastation as well as lower transport during the month. Similarly, petrol sales were also lower by 13 percent year-on-year due to lower demand and usage in transport.

However, month-on-month comparison shows that there was improvement in sales numbers in August-22. Petrol sales increased by over 7percent month-on-month due to 4 percent month-on-month decline prices, resumption of schools and lesser public holidays in Aug-22. Similarly, HSD volumes increased by 11.5 percent month-on-month due to 5 percent month-on-month decline in HSD price along with resumption of schools.

Decline in HSD sales is linked to weaker economic and transport activity and now heavy floods. Furnace oil sales slowdown show improved hydel flows amid heavy monsoon showers and lower electricity demand. And MS sales have also been down due to rainfall, floods and weaker road infrastructure. Add high prices to these and there is a clear indication of slowdown in petroleum consumption and weaker sales in coming months. The decline in volumes in 2023 were already anticipated due to higher petroleum prices particularly of retail fuels and weakening economic activity, slower agriculture growth, falling auto sales amid rising inflation.