Diesel hike halves consumption growth to 5% in September

The trend will bring relief to the OMCs as diesel alone accounts for 60% of the total under recoveries from 3 regulated products-diesel, kerosene and domestic LPG

Diesel price hike has put brakes on the double digit consumption growth of the highly subsidized fuel. Following the 13% hike on September 13, the oil marketing companies have witnessed a softening in diesel off-take to 5-6% compared to the usual double-digit growth. According to provisional data, diesel grew by just around 5% in September compared to 9.8% in corresponding month last year.

The trend will bring relief to the OMCs- IndianOil, Bharat Petroleum and Hindustan Petroleum- as diesel alone accounts for 60% of the total under recoveries from three regulated products-diesel, kerosene and domestic LPG. An IndianOil official said the price hike has triggered a tendency to conserve diesel but better rains in September and improved power situation also seem to have contributed to lower diesel growth.

The non-revision of price for more than a year had triggered preference among industrial consumers for diesel over costlier and market linked furnace oil. Industrial consumers had lapped on to diesel to take advantage of its static price and fuelled demand for diesel that grew in double digits for last several months. According to the data with the government’s Petroleum Planning and Analysis Cell, diesel consumption grew by 10.4% in August and 13% in July.

Diesel demand had been growing rapidly after the government decontrolled petrol in June 2010, leading to frequent price hikes. When decontrol was done petrol was expensive by nearly 26% compared to diesel. It is 46% costlier to diesel now.

Within months of decontrol, the growth rate of petrol also slipped below diesel for the first time in recent history. Growing preference for diesel driven vehicles and usage of diesel as an industrial fuel also supported the growth rate of diesel. In FY12, the share of petrol vehicles in total sales dropped to 53% from 72% in the earlier year while share of diesel vehicles rose to 47% from 28% in the previous year. This trend has further accentuated in the current fiscal.

Currently, the OMCs incur an under recovery of Rs 11.65 on every litre of diesel compared to margin of around Rs 1.60 on petrol. The Rs 5 per litre hike in diesel came after a gap of 14 months. In FY12, the under-recovery on diesel alone was Rs 81,192 crore of the total Rs 138,541 crore under recovery.