The monsoon is expected to bring above-average rainfall after two years of drought, cutting its use of diesel for irrigation pumps and generators over the third quarter and may also rejuvenating exports of the oil product.
India is a net exporter of diesel — which accounts for about 40 per cent of its oil demand — but a jump in imports by state refiners since April helped erode additional surplus of the fuel, lifting its regional profit margins to the highest for the year till the end of May.
The state refiners ramped up diesel imports in the second quarter after supplies from private oil processors Reliance Industries and Essar Oil became too expensive in the absence of discounts on taxes and shipping.
Now, as the rains come and domestic demand drops, diesel imports could halt and exports rebound. "During the monsoon demand for diesel sees a down because industrial activity slows, transport movement gets affected and demand from agriculture also reduces," said Tushar Bansal, a senior consultant at energy consultancy.
India's weather office has forecast above-average rains in the four-month season from June. The monsoon rains are crucial for the country's farmers, which otherwise use diesel-powered pump sets to draw water to irrigate their land.
Officials at Indian state refiners, which dominate the local retail fuel markets, said they also see diesel demand softening during the monsoon season. YK Gawali, head of marketing at Hindustan Petroleum Corp, qouted that Major construction activities including road construction virtually stops during rains, so there are bound to be an impact on diesel demand.
More rain also boosts hydropower generation alleviating electricity shortages and reducing demand for diesel to power small diesel generators to keep lights burning. "We have seen very high diesel demand in April-May. In June also it is rising. But I expect diesel demand (in the third quarter) to be 50 per cent of the April-June quarter," Gawali said.