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Analysis: India's rare gasoil imports signal supply tightness as elections loom

Highlights

State-run HPCL looking to import more than 1 million mt gasoil

Move could put upward pressure on Asian gasoil prices

Other Indian refiners unlikely to import similar large volumes

  • Author
  • Sambit Mohanty    Clarice Chiam
  • Editor
  • Wendy Wells
  • Commodity
  • Oil

Singapore — India's unusual move to ramp up gasoil imports from April is a sign that upcoming federal elections and refinery turnaround plans may squeeze domestic availability at a time when demand is expected to remain robust, potentially lending some support to Asian gasoil prices.

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Analysts are of the view that incremental domestic demand during the second quarter -- when India is scheduled to hold its biggest-ever federal elections -- is expected to deplete stock levels.

As a result, in addition to limiting exports, India would be keen to import gasoil to replenish stocks and cater to demand from Q3 onwards, when some refinery turnarounds are likely. But not all refiners would be looking to import cargoes, market sources said.

"India's gasoil demand is expected to get a boost as the country gears up for general elections in April-May. Refiners with planned maintenance would look to import to build stocks and prepare to meet this rise in demand," said Lim Jit Yang, director for Asia-Pacific oil market analysis at S&P Global Platts Analytics.

Sentiment in the Asian gasoil market was buoyant after Hindustan Petroleum Corp. Ltd. -- a regular supplier of the middle distillate -- sought to buy, in a rare move, up to 1.095 million mt of 45 ppm sulfur high speed diesel via two term tenders.

The first tender is for seven 65,000-mt cargoes for delivery to Mundra over May-November, with an option to purchase an additional six cargoes on the same terms and conditions during the contract period.

In the second tender, HPCL is looking to purchase 8-13 65,000-80,000-mt cargoes of the same grade, slated for delivery to Visakhapatnam over April-November, with an option to increase the purchase by another 290,000 mt over the contract period.

"The sudden requirement from HPCL could be likely due to anticipated higher demand during elections and possibly because of some unplanned shutdowns at one of their refineries," said Senthil Kumaran, consultant at Facts Global Energy.

"The refiner already buys a substantial volume of transport fuels from private players to meet retail demand. Any planned or unplanned maintenance will leave it severely short of products," he added.

PRICE IMPLICATIONS

Asian gasoil prices have been stable to slightly softer over the past week, with healthy supplies exerting some downward pressure on the market. Still, some sources said they remained optimistic on the longer term outlook.

"It will surely help the market," one source said, referring to India's plan to import gasoil.

Asian gasoil structure

At the Asian close Tuesday, the FOB Singapore 10 ppm sulfur gasoil cash differential was up 3 cents/b day on day at minus 20 cents/b to Mean of Platts Singapore Gasoil assessments, while the April/May gasoil timespread inched up 1 cent to minus 17 cents/b.

S&P Global Platts previously reported that HPCL had put on hold a planned maintenance shutdown of a crude distillation unit at its Mumbai refinery that was initially scheduled for the January-March quarter. The 7-10 day shutdown had been proposed to carry out an interlinking process at the 4 million mt/year capacity crude unit. Instead, the refinery will undertake the short duration CDU shutdown simultaneously with a revamp planned next quarter, when the company plans to revamp its motor spirit block for 35-45 days.

HPCL also has maintenance plans for its Vizag refinery, for secondary units as well as the three CDUs, for 3-4 weeks in July-September.

LIMITED VOLUMES

Asian gasoil traders said gasoil imports by other Indian refiners, at least on the same scale as the term volumes being sought by HPCL, were unlikely.

"I doubt so -- the reason being it is not normal for them to import so much in the first place," an industry source said.

About 900 million eligible voters -- about 10% more than in the last federal election in 2014 -- will have a say on who will form the next government when India goes to the polls from April 11.

Platts Analytics expects India's gasoil demand in Q2 to grow at a rate of about 5% year on year. According to data from India's Petroleum Planning and Analysis Cell or PPAC, India's gasoil demand grew by 4.1% in 2018 to 82.65 million mt, from 79.43 million mt in 2017.

Several sources have said that India's private refiner Reliance Industries had postponed a planned turnaround for one of the CDUs at its 35.2 million mt/year or 704,000 b/d export-oriented Jamnagar refinery in the western state of Gujarat, although there has been no confirmation from Reliance.

The CDU was supposed to undergo month-long maintenance starting in Q2, but this was heard to have been postponed until Q3. Asian gasoil traders and analysts said the turnaround might have been pushed back due to higher gasoil demand ahead of the elections.

-- Sambit Mohanty, newsdesk@spglobal.com

-- Clarice Chiam, newsdesk@spglobal.com

-- Edited by Wendy Wells, newsdesk@spglobal.com

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