India's oil product consumption rose 6.3 percent in April from a year ago, driven by strong sales of cars and motorcycles in the month and cheap fuel prices, which are set to rise this weekend but not by enough to dampen demand.

In the fiscal year to March, domestic oil sales, a proxy for oil demand, grew 7 percent, the fastest pace in eight years, powered by rapid economic growth.

India is expected to raise retail fuel prices on Saturday as petrol and diesel prices are lower than they were two years ago, while crude oil prices have doubled, squeezing state refiners that sell petrol and diesel below cost.

But higher prices may not slow demand in Asia's third-largest consumer as incomes are rising and the economy, which grew 9 percent annually in the past three years, is forecast to expand at least 8.5 percent this year.

Besides, the government is expected to scale down the oil ministry's proposal to raise prices 15-20 percent and make fuels only 5-10 percent more costly, which analysts say will only have a marginal and temporary impact on demand.

If the government raised petrol prices by over 20 percent low-end users of motorcycles and cars would reduce personal consumption, said Amrit Pandurangi, executive director with PricwaterhouseCoopers.

"That also will be probably temporary. People are less sensitive than what everybody thinks," he said, adding that diesel consumers, mostly commercial establishments, would be able to pass on the cost to their customers.

"It would depend on the extent of the increase but in a sense demand is somewhat inelastic to prices," said Ravi Mahajan, partner at Ernst & Young.

India's oil consumption, about 2.9 million barrels per day, and China's 7.9 million barrels have helped oil prices rise, while rolling back of subsidies in some Asian nations has contributed to the fall in prices this week.

India's April diesel sales rose 13.1 percent while petrol sales were up 14.4 percent, helping total domestic oil product sales rise to 11.24 million tonnes from 10.57 million tonnes a year ago.

An official at Indian Oil Corp said use of diesel sales were also boosted by the fuel's use by rigs off India's east coast and some power plants were switching to diesel from naphtha or fuel oil, which are not subsidised.

The International Energy Agency has cut its world oil demand forecast but kept its estimates for Indian consumption in 2008 unchanged at 2.9 million barrels a day, up 4.8 percent over 2007.

India expects domestic demand for oil products to grow at a compounded annual growth rate of 2.9 percent to 132 million tonnes in 2011/12.

India's crude oil imports in April grew marginally by 0.5 percent to 11.04 million tonnes.

Recommend this news <none> 1=poor2=cool3=good4=better5=excellent

Latest comments

Add comment

Full Name *
Email address *
Location
Your Comments *