2016: Low oil prices lead to highest fuel sales growth in at least 16 years

2016: Low oil prices lead to highest fuel sales growth in at least 16 years

India's fuel demand in 2016 grew at its highest pace in at least 16 years as low oil prices for most of the year boosted demand for gasoline and aviation fuels.

Consumption of fuels, a proxy for oil demand, surged 10.7 percent to 196.48 million tonnes in 2016, data from the Petroleum Planning and Analysis Cell (PPAC) of the Oil Ministry showed.

State polls in India in five states in February and March are likely to send thousands of voters criss-crossing vast distances, boosting gasoline demand throughout the first quarter of 2017, but analysts say growth could slow over the year as currency woes bite.

Huge rallies by parties to showcase their political might among voters are a common sight before elections. Canvassing involves transportation of thousands of people from neighbouring areas to the rallies in trucks and buses.

India's refined fuel demand grew at 4.3 percent in December, its slowest pace in three months, but use of diesel-fired generator sets and vehicles by political parties for canvassing in state polls could result in higher demand this quarter.

"2016 fuel consumption was high, mainly due to gasoline sales, rapid penetration of LPG (liquefied petroleum gas) in parts of the country and cheaper air travel due to low oil prices," said Tushar Tarun Bansal, a director at Singapore-based consultancy Ivy Global Energy.

Gasoline demand rose 12.2 percent in 2016 on top of strong growth in 2015, with diesel demand rising 5.6 percent, its fastest in four years, driven by a surge in domestic automobile sales.

Cooking gas or liquefied petroleum gas (LPG) sales rose 11.3 percent to 21.19 million tonnes.

In early November, India scrapped the 500- and 1,000-rupee notes as part of a crackdown on tax dodgers and counterfeiters but allowed the use of the banned currency for select purposes such as buying fuel for automobiles and cooking.

India's December fuel sales were dented by an end of that exemption, which was the main reason for a spike in local sales in November. Data on India's fuel consumption is available only from April 1998 on the PPAC's website.

Bansal of Ivy Global sees India's fuel demand growth slowing by 4.8 percent to about 4.4 million barrels per day (bpd) in 2017 as currency concerns could slow economic and industrial growth while higher oil prices could choke of the fuel demand gains.

"Efforts to ban large denomination notes will have a temporary negative effect on overall economic activity, as they restrain the efficient distribution of money," the International Energy Agency (IEA) said in a report last month.

The IEA also estimated India's fuel demand growth to ease to 6.3 percent in 2017 from an estimated 7 percent in 2016.