Oil demand to grow 5.2% on poor rains, power shortages: CMIE

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The ongoing issues in the power sector, which is badly hit by coal and gas shortages, coupled with poor monsoons in some states, will increase the demand for oil products, which is set to increase to 5.2 per cent this fiscal (2012-13) from 4.4 per cent a year ago, says the Centre for Monitoring Indian Economy (CMIE).

"The total consumption of petroleum products is expected to grow by 5.2 percent this fiscal compared to 4.4 per cent growth logged in last fiscal, driven primarily by a spike in diesel demand, which has already more than doubled in the first quarter and will see further fillip following the poor monsoons in some states," the agency said in the monthly monitor.

However, it is silent on the impact of the sharp 12 per cent diesel price hike earlier this month on demand, as the report was prepared before the hike.

The report further notes that the ongoing economic crisis in Europe and the US and the soft landing of China will, however, weaken global demand for oil. Diesel consumption increased 10.9 per cent during April-July as against 5 per cent rise in the corresponding period last year, it notes.

"The demand for diesel is expected to rise on account of power shortages and deficiency in rainfall. Deficient rains will lead to higher use of pump sets for irrigation resulting in an increase for diesel," CMIE said.

The sharp reduction in rainfall over the North and Central regions caused the overall rainfall deficiency to 7 per cent during the week ending September 26, from 5 percent in the previous, according to the Met department data.

The power and agriculture sectors account for nearly 20 per cent of the total diesel consumption, the report said and noted that diesel that accounts for 40 per cent of petroleum products consumption is expected to go up further this fiscal.

The report notes that the expected pick up in the auto sector will also augur well for diesel demand.

"Sales of commercial vehicles are likely to pick up in the remaining months of the year, which will support the growth in demand for diesel.''

''As diesel is cheaper by around Rs 25 per litre as compared to petrol, we expect demand to shift in preference of diesel powered passenger cars.''

''Diesel is also expected to replace CNG on account of diminishing price gap between the two fuels. This is expected to push up the demand for diesel," it said.