Oil, Gas Sector Check - IEA Sees Demand Slowdown Amid Weak Margins: Nirmal Bang

Nirmal Bang Report

Weak refining margins and tepid retail pump margins imply weak Q1 FY25 for oil marketing companies. The roll-back of the cut in March 2023 looks slim, at least for now. States raising VAT as done by Karnataka is an added worry that could hamper OMCs’ price hikes or Union Government raising excise duty to mop up additional revenue.

Spot LNG prices have spiked by ~7% QoQ in Q1 FY25 due to anticipated increase in power demand for cooling amid rising summer temperatures. Further, the outage in an Australian LNG production unit is likely to keep Asian LNG prices buoyant.

Slowdown in global oil demand growth.

International Energy Agency expects a slowdown in global oil demand growth – CY24 growth is estimated at 960 kb/d, which is 100 kb/d below last month’s forecast. Weak Organization of Economic Cooperation and Development deliveries resulted in global demand witnessing a narrow YoY contraction in March-23.

IEA also expects subpar oil demand growth of 1mn bpd in CY25 – tempered by a muted global economy and accelerating deployment of clean energy technology.

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