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* India's September oil demand rose by 334,000 b/d over weak base last year, driven by gasoil and gasoline
* Q4 demand is expected to rise sequentially due to festive and holiday seasons, increase modestly on year
* India's demand is expected to grow 300,000 b/d in 2022, driven by middle distillates before easing to 230,000 b/d in 2023

India's September oil product demand was flat month on month but up on the year by 334,000 b/d on a weak base in the previous year, driven by gasoil and gasoline consumption, which were up by 179,000 b/d and 65,000 b/d, respectively. Modest growth was also seen for other products such as LPG, kerosene/jet fuel, fuel oil and minor products, except naphtha which declined by 21,000 b/d.

India’s consumer inflation rose to 7% in August from 6.7% in July and is likely to trend higher in September due to higher food prices. The Reserve Bank of India (RBI) raised the policy rates by 50 basis points Sept. 30 in its continued efforts to tame inflation and control currency depreciation. This is the fourth hike by RBI since May, when it reversed its accommodative stance and raised policy rates by a total of 190 basis points. India’s August PMIs for both manufacturing and services stayed well above the 50-threshold level, pointing to an expansion in the sectors but there are signs of this easing. India's manufacturing PMI stood at 55.1 in September after the headline figure slipped from 56.2 in August. Still, this was the fifteenth straight month of growth in factory activity despite global headwinds and growing recession risks. The latest services reading was the weakest expansion in the sector in six months as both output and new orders grew at the slowest rates since March amid inflationary pressures and competitive conditions.

In the near term, we expect India’s oil demand to rise sequentially by 180,000 b/d in Q4 after the monsoon season, boosted by festive and holiday seasons. On a year-on-year basis, the demand in Q4 is expected grow by 75,000 b/d, down from 370,000 b/d over the first three quarters of this year, which was boosted by a low base in the previous year. Overall, India’s oil demand is expected to grow by 300,000 b/d in 2022, before easing to a 230,000-b/d growth in 2023. Middle distillates (gasoil and kerosene/jet fuel combined) will account for about half of the growth in 2022, partly due to a slow recovery in 2021, before contributing to about a third of the growth in 2023. India’s oil demand in 2022 is expected to rise 0.8% over levels in 2019 before rising to 5.2% in 2023.

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