OREANDA-NEWS. India's oil demand growth is continuing to disappoint refiners and fuel marketers. The government expects oil product demand to rise by 4.5pc in the April 2017 to March 2018 financial year, led by stronger consumption of petroleum coke and LPG. But the oil ministry's projection has been cut from its previous forecast of 5.8pc and would be weaker than actual growth of 5.4pc recorded in 2016-17.

Even the revised estimates are running above recent growth levels. Total fuel consumption in April-November, the first eight months of the current financial year, rose by just 3.4pc from a year earlier.

Delhi had forecast double-digit growth in fuel demand in 2016-17, after achieving strong growth of 11.6pc in fiscal 2015-16. But demand in fact grew by just 5.4pc, putting 2016-17 consumption at 194.6mn t.

The oil ministry's revised figures put demand in 2017-18 at 203.4mn t. April-November demand was 134.6mn t, or an average of 16.8mn t/month, with November consumption at 17.4mn t. Demand of 17mn t/month for the last four months of the financial year would put total consumption at just over 202mn t, roughly the target set by Delhi for 2016-17.

The prospects for substantial demand growth in 2018-19 may be dimming, given a slow and uneven manufacturing expansion and regulatory intervention in the petroleum coke sector. Longer-term headwinds include the possible adoption of electric cars and electrification of rail networks.

India's economy expanded by 6.3pc in July-September, official figures show, as GDP growth picked up to end a five-quarter slowdown. But the reliability of the government data is unclear, given it contrasts with other data points such as credit growth, which actually fell by 0.3pc year on year during the period.

A lack of private-sector investment and reduced government spending on infrastructure to meet deficit targets continues to dampen fuel use. Ratings agency Fitch has cut India's 2017-18 GDP growth forecast to 6.7pc from its earlier projection of 6.9pc. It expects GDP growth to pick up to 7.3pc in 2018-19, although this is below the 10pc figure promised by the BJP government when it came to power in 2014.

Delhi's sudden cancellation of high-value currency notes in November 2016, and tax reforms introduced in July, have hit economic growth and weighed on oil demand. Industrial production grew by 2.5pc in April-October compared to 5.5pc a year earlier.

India's fuel mix is dominated by four products — diesel, gasoline, LPG and petroleum coke. Diesel accounts for the single-largest share of consumption at around 40pc. Demand for the fuel in April-November rose by 5.3pc to 1.63mn b/d. The government expects consumption in 2017-18 as a whole to increase by 5.8pc to 1.64mn b/d.

Sales of gasoline, which makes up around 13pc of the fuel mix, rose by 8.6pc in the latest eight-month period to 602,000 b/d. Gasoline demand growth in 2017-18 is forecast to accelerate to 9.8pc, taking consumption to 604,000 b/d.

But the biggest boost to fuel demand has come from LPG and petroleum coke. LPG use is benefitting from government policies, with Delhi looking to add another 40mn subsidised connections in the next few years.

India's LPG demand has now climbed year on year for 51 consecutive months, boosted by lower crude prices that have made LPG affordable for poorer users, as well as the government's drive to expand use of the fuel in villages and small towns.

LPG demand was 2mn t in November, up by 6.7pc from a year earlier but short of the record high of 2.06mn t reached in August. The government expects LPG use to rise by 9.7pc to 23.7mn t in 2017-18.

Petroleum coke has also been a strong contributor to overall demand, but the outlook for the fuel is becoming increasingly uncertain. A rising focus on air pollution, driven in part by severe smog in the capital Delhi, has driven a series of court rulings restricting the use of petroleum coke, which has high sulphur content.

India consumed 1.91mn t of petroleum coke in November, up by 10.3pc from a year earlier but down from 2.2mn t in October. Demand fell by 6pc from a year earlier to 17.6mn t during April-November, when petroleum coke made up 13pc of India's total fuel use by volume. Petroleum coke demand is likely to increase by 4.9pc to 25.1mn t in 2017-18, compared to growth of 24pc a year earlier, the oil ministry says. But the court judgements add another level of uncertainty to the government forecasts.