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India's petroleum demand to grow 3-4% in FY25: Fitch Ratings

The growth in the current fiscal is supported by rising consumer, industrial and infrastructure demand, the rating agency said in the report, projecting India’s GDP growth at 6.4 percent in FY25.

January 03, 2025 / 21:08 IST
The growth in petroleum product demand is likely to be broad-based, with diesel and petrol accounting for the majority.

The growth in petroleum product demand is likely to be broad-based, with diesel and petrol accounting for the majority.

India’s petroleum products demand is expected to rise by three to four percent in the financial year ending March 2025, lower than five percent growth in FY24, according to a report by Fitch Ratings.

The growth in the current fiscal is supported by rising consumer, industrial and infrastructure demand, the rating agency said in the report, projecting India’s GDP growth at 6.4 percent in FY25. The growth in petroleum product demand is likely to be broad-based, with diesel and petrol accounting for the majority, it added.

For India’s oil marketing companies (OMCs), refinery margins are expected to fall below their mid-cycle levels in FY25 amid lower product cracks, regional oversupply, and lower benefits from price differences between crude varieties, it said.

However, marketing margins would be healthy on lower Brent crude oil prices than FY24. “This will mitigate the pressures from lower refining margins for the OMCs, although pure refiners like HPCL-Mittal Energy Limited’s (HMEL, BB+/Stable) will face greater pressure on profitability. We expect refining margins to recover to their mid-cycle levels in FY26, as the regional oversupply eases and Brent crude oil prices fall in line with Fitch’s assumption, while we project marketing margins to remain supportive. HMEL’s low rating headroom in FY25 will improve in FY26 due to a gradual normalisation in refining margins,” the report said.

For the upstream companies including Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL), profits are expected to ebb due to subdued production and lower crude oil prices. Fitch Ratings said domestic prices for gas produced from legacy fields are expected to continue to be capped at $6.5/MMBTU in 2HFY25, as they are determined by a formula that benchmarks prices to 10 percent of crude prices.

India’s oil and gas production is expected to be broadly flat in FY25. The report said India’s crude oil production would fall by two to three percent in FY25, reflecting the ongoing struggle of upstream companies to arrest the natural output decline at mature fields through technology investments to raise recovery and tap isolated reservoirs.

However, production should grow by low single-digit percentages in FY26, as production increases at ONGC’s offshore field in the KG Basin, and at privately owned fields, it added.

The country’s crude oil import dependency would continue to rise in the near term, driven by faster growth in petroleum product demand than in domestic crude oil production.

Shubhangi Mathur
first published: Jan 3, 2025 08:39 pm

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