Exports may drop to below 1.2 MMBPD this year. Such a level was last seen in 2010, as per S&P Global Platts
In a trend that could further widen the trade deficit and exert pressure on the rupee, exports of domestic oil products fell 24% in January compared to a year ago. On the other hand, oil imports, the biggest contributor to India's forex outflows, have been rising.
The latest report of S&P Global Platts Analytics shows exports of oil products dipped the sharpest in nine months by 355 million barrels per day (MBD) or 24% to 1.1 metric million barrel per day (MMBPD) in January. This was the steepest drop and lowest monthly level since April 2018.
Economists told DNA Money if the current trend continues, it will further weaken the rupee as oil product exports act as a natural hedge against the dollar-denominated oil imports.
Ranen Banerjee, leader, PwC India, said the sharp drop in oil exports is likely to impact rupee and trade deficit. "The exports of petroleum products provide a natural hedge against imports of oil and the forex spent on imports of oil. Therefore, if exports slow down, then obviously the natural hedge to that extent is lower. It will have an impact on our trade deficit plus there will be pressures on our currency because your dollar demand will be more. If you are importing certain volume of oil and you are exporting certain volume of oil products, then you are buying in dollars and selling in dollars... It will put pressure on the currency provided oil imports continue to be high," he said.
On Thursday, rupee rose 19 paise to 71.05 against dollar. As on February 15, rupee, at 71.36 per US dollar, was down 11.62% compared to a year ago level of 63.93.
The decline in oil products exports comes at a time when oil imports have been rising steadily as the country meets a higher percentage of its total domestic demand from the overseas markets. The government data reveals that oil imports met 81.7% of India's oil demand in 2016-17. The figure rose to 82.9% in 2017-18 and 84.7% in 2018-19.
S&P Global Platts expects oil product exports in the current year to drop below 1.2 MMBPD. Such a level was last seen in 2010.
According to the US-based energy consultancy, the decline could be attributed to higher domestic demand and low capacity utilisation of refineries in India.
"This was a result of robust domestic demand, with growth of 300 MBD in January, and lower refinery output due to a number of major turnarounds at refineries including Reliance Jamnagar, BPCL Kochi and IOCL Panipat," states the S&P Global Platts report.
According to January data from the Petroleum Planning and AnalysisCell (PPAC), domestic oil product exports were dragged lower by diesel, naphtha and gasoline, which were down year on year by 206 MBD, 84 MBD and 42 MBD, respectively.
However, India's LPG imports in the same month were up by 7.4%year on year due to strong demand, well above an average of 1.9% growth for the whole of 2018.
D K Srivastava, chief policy advisor, EY India, said since oil products constituted around 20% of the total exports, it will impact trade deficit adversely but since its contribution to the net exports was small, it may not get immediately reflected in the GDP growth numbers. "Net exports are marginally negative," he said.
In January, merchandise exports rose 3.7% from a year earlier to $26.36 billion while imports were up 0.01% to $41.09 billion, widening the trade deficit to $14.73 billion compared to $13.08 billion in the previous month.
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On Thursday, rupee rose 19 paise to 71.05 against dollar. As on February 15, rupee, at 71.36 per US dollar, was down 11.62% compared to a year ago level of 63.93.
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