Below-average rains have curbed hydropower generation, particularly in Pakistan, and have boosted agricultural demand for diesel to power irrigation systems.
Back up diesel generators are common throughout South Asia, with the lights staying on in a raft of offices and shops as diesel units purred into action when the north of India was hit by massive power cuts in early August.
State-owned importer Pakistan State Oil (PSO) is seeking an additional 110,000 tonnes of gasoil after last week tendering for up to 305,000 tonnes for the first time in three months, its largest requirement in more than a year.
"Pakistan needs to buy gasoil due to the non-availibility of hydropower and a gas shortage faced by power plants," a Pakistan-based industry source said.
"The country's gasoil demand this time last year was quite low due to floods, so PSO has been forecasting higher rainfall and had planned imports accordingly. The delayed monsoon has surprised everyone."
Floods killed over 300 people and damaged or destroyed about 1.2 million houses in August last year.
Pakistan's spot requirements for gasoil are above its long term-contractual agreement with Kuwait Petroleum Corp, with whom it is set to buy around 3 million tonnes of gasoil this year.
KEEP ON GROWING
In the same tender, PSO is also seeking 1 million tonnes of fuel oil and gasoline for delivery from October to December.
Pakistan's oil demand has grown by a total of about 35,000 barrels per day over the past five years to around 400,000 bpd this year, with the majority of that increase from fuel oil, which is used in oil-fired power stations, said Faruq Taib, an analyst at FACTS Global Energy in Singapore.
"The country is facing a severe gas shortage and the bulk of their power generators are gas-fired ... so they're moving towards oil," Taib said.
Gasoline demand has also increased due to the gas shortage as more car-users are switching to petrol from compressed natural gas (CNG), he added.
The country's government faces a circular debt problem where state utilities lose money from non-paying consumers and low electricity prices and cannot pay power-generating companies who in turn cannot pay gas suppliers.
Delayed monsoons have also boosted demand for diesel in India, with traders saying the country's stocks have fallen below their normal average of about 15 days, though the exact volume could not be verified.
"Demand from both retail stations and the agriculture sector is very high so that's drawing down on stocks," said a trader based in the country.
Earlier this month, India's weather office revised its forecast for the monsoon season to deficient rains - a drought in layman's terms.
While India's state-owned importers have not been seeking diesel aggressively in the international spot market, their uptake has increased from India's private refiners Essar and Reliance, with whom they have term contracts, traders said.
Refinery maintenance beginning in September that will shut up to 139,000 bpd of capacity is also expected to stoke some import demand from Indian companies, traders said.
Still, more expensive international prices and a slowing global economy could curb Indian diesel imports, they added. Recent official import statistics are not available.
So far, only Indian Oil Corp has bought diesel in the spot market for August delivery.
"Yes stocks are being drawn down, but it's not difficult to get the extra volumes from Reliance and Essar and so the stocks are being replenished at the same rate," an India-based trader said.
Additional supply from new refineries, the 120,000 bpd Bina plant and the 180,000 bpd Bathinda facility, is also helping to meet additional diesel demand, traders said.
Copyright @ Thomson Reuters 2012