Indian oil demand continued on its strong growth path in August, rising y/y by 219 thousand b/d (7.8%) to 3.029 mb/d. In the year-to-date, Indian oil demand is running higher y/y by a solid 167 thousand b/d (5.6%) and is the second strongest source of growth in the world, lagging only Japan. The bulk of the growth, once again, came from diesel, which increased by 114 thousand b/d (10.3%) to 1.222 mb/d. As we highlighted in Comment: Indian diesel price hike – does it change anything? 14 Sep 2012, diesel demand in the country has been surging on the back of a disappointing monsoon season. The Agriculture Minister's 50% subsidy in diesel prices for regions where rainfall was 50% below average provided further support last month. Also, two consecutive days of power grid failures boosted diesel demand. Back-up generators were used heavily, from residential and commercial users with small diesel generators to adhoc support for infrastructure and industry using medium and large diesel generators to maintain activity.
Despite the first decline in car sales in 10 months and the first fall in motorcycle sales since January 2009, petrol demand growth remained steady at 7% y/y. Naphtha demand soared by 26% y/y to 328 thousand b/d, with Indian naphtha prices rising and backwardation steepening further on tight domestic supplies. Fuel oil demand continued to decline, falling by 11% y/y. Overall, although we expect the growth rate in Indian oil demand to ease in the coming months, following the improvement in monsoon rains and a hike in retail prices, weakness in domestic oil production and continued destocking (see Figure 1) should keep Indian crude buying strong.