India oil demand shrinks for third month amid demonetization drag

MUMBAI (Bloomberg) -- India’s oil consumption fell for a third straight month, with the use of bitumen and naphtha declining and diesel demand growth flat, amid the continuing effects of demonetization.

Total fuel consumption fell 0.7% to 17.36 million tons in March, according to the Oil Ministry’s Petroleum Planning and Analysis Cell. That puts consumption during January-March about 3% lower than the same period last year as the economy slows under the impact of Prime Minister Narendra Modi’s decision in November to remove high-denomination currency notes from circulation.

“I think the resilience of demand in the face of an incredibly high 2016 base is impressive, especially given the turbulence caused by demonetization,” Virendra Chauhan, an oil analyst at Energy Aspects, said. “Gasoline, diesel and LPG, the key drivers of Indian oil demand in recent times are still on an upward trend.”

India’s oil consumption plunged 5.9% in January, the most in 13 years. Demand then fell by 3.1% in February, though the same month last year had an extra day owing to the leap year. The oil ministry on Monday published revised January and February figures along with the March data.

India imports more than 80% of its crude requirement and the International Energy Agency expects it to be the fastest-growing consumer through 2040. Gasoline consumption rose 2.9% to 2.1 million tons in March, while demand for liquefied petroleum gas grew at the slowest pace since August 2013.

M.K. Surana, chairman of India’s third largest fuel retailer Hindustan Petroleum Corp., expects demand to pick up in the coming months. "The demonetization affect is also over now, so demand will increase going forward," he said in a phone interview.