After September high, India’s diesel exports may lose steam on lower margins, domestic demand

Declining margins are the result of relatively weak demand for petroleum products even as global refining capacity increases | Photo Credit: ARRANGEMENT

After hitting a six-month high in September 2024, India’s diesel export is expected to decline during the festival season impacted by weakening price arbitrage in Europe amidst anticipation of higher domestic consumption during October to December.

According to energy intelligence firm Vortexa, India’s diesel exports rose by 44 per cent month-on-month (m-o-m) and 21 per cent year-on-year (y-o-y) to clock around 656,760 barrels per day (b/d) last month. Analysts and trade sources attributed the jump to refinery maintenance in Europe which led to higher sourcing of the refined product.

Besides, India’s consumption of diesel — mainstay of the transport and logistics sector — also declines during the monsoons from June to September. In fact, during August and September 2024, domestic consumption of diesel fell to record lows of 15 months and 24 months, respectively, thereby sparing more volumes for exports.

“With strong diesel exports to Europe over the past months and demand remaining relatively bearish, the region has likely built up ample supplies. Combined with the restart of its domestic refineries, the region’s import momentum for diesel may slow in the months ahead,” Vortexa’s Head of APAC Analysis, Serena Huang, told businessline.

Outbound shipments

“The stronger exports have been driven by weaker domestic demand due to the monsoon season, as well as an open diesel arbitrage to Europe amidst the region’s refinery maintenance. With domestic demand in India expected to pick up from this month (October) onwards, and Europe’s refinery maintenance tapering off, India’s diesel exports to Europe could slow in the coming months,” Huang said.

A senior official with a domestic refiner pointed out that generally exports during October-December are lower compared to July-September. Besides, the FMCG and FMCD sectors start preparations for Diwali, and other festivities leading to more logistics and transportation activity. Exports also witness an uptick in activity in preparation for the holiday season in the West.

“However, this time we anticipate weaker export earnings due to the slowdown in China and recession fears in Europe and the US. Also, refining margins have been under stress,” the official added.

Margins under pressure

According to OPEC’s monthly oil market report, refinery utilisation rates decreased to an average of 87.86 per cent in September, corresponding to throughput of 25.40 million barrels per day mb/d in selected Asia–Japan, China, India, Singapore and South Korea.

Compared with the previous month (August 2024), utilisation rates were down by 1.7 percentage points, and throughput was lower by 130,000 b/d. Relative to the previous year (September 2023), utilisation rates were 7.5 percentage points lower, and throughput was 2.0 mb/d lower, it added.

Similarly, the US EIA said that refinery margins for petroleum refiners across the world are shrinking, indicating reduced profitability from refining crude oil and selling petroleum products. Declining margins are the result of relatively weak demand for petroleum products even as global refining capacity increases.

Global refinery margins, measured by the 3:2:1 crack spread, have been less than their five-year (2019–23) averages since the spring and dropped even more in the late summer and early fall. The 3:2:1 crack spread is calculated by subtracting the price of 3 barrels of crude oil from the price of 2 barrels of gasoline and 1 barrel of distillate.

“This year, the September monthly average refinery margin fell to its lowest for the month since 2020, when there was significantly low transportation fuel demand because of pandemic-related reductions in travel,” the US EIA added.

According to Emkay Global, during September, oil imports rose on the month ($12.5 billion, 13.8 per cent m-o-m, -10.4 per cent y-o-y), while exports fell ($4.7 billion, -20.5 per cent m-o-m, -26.7 per cent y-o-y, causing the oil deficit to rise despite substantially lower crude oil prices.

India’s petroleum product (POL) exports rose by 21 per cent y-o-y (5.8 million tonnes) in volume terms in September 2024 but fell by 9 per cent y-o-y ($3.9 billion) in terms of value. Similarly, the volume of exports during April-September FY25 rose by almost 1 per cent y-o-y (31 million tonnes), but fell by 7 per cent y-o-y ($22 billion) in value terms.