By Heesu Lee, Saket Sundria and Debjit Chakraborty

India’s sputtering economy is turning the energy-hungry nation into an unlikely source of diesel exports.

The industrial fuel is the lifeblood of Indian manufacturing, transport and agriculture, making it the country’s most-consumed petroleum product. But five straight quarters of slowing growth is taking an increasing toll on demand, resulting in diesel consumption slumping to the lowest since the start of 2017.

The sharp slowdown - economic growth has almost halved since the middle of 2016 -- was compounded by a heavier-than-normal monsoon in some areas, taking refiners by surprise. This forced them to cut operating rates and spurred a 47% jump in exports of diesel, also known as gasoil, to a record 3.5 million tons last month.

“We do see India’s gasoil demand dipping in the near term in line with the weak macroeconomic environment,” said Rachel Yew, an analyst at industry consultant FGE in Singapore. The weakness will continue “at least through the rest of 2019,” she said.

Indian diesel consumption has fallen for four straight months to 5.8 million tons in September from 7.8 million tons in May, according to government data. The 3.5 million tons of overseas shipments last month compares with an average of 2.2 million tons in the first eight months of the year.

While Indian diesel exports typically go to Europe, strong near-term buying interest from Asia may draw some shipments east, said Nevyn Nah, an analyst at Energy Aspects Ltd. Exports are likely to taper toward the end of the year, although they will remain higher than the same period in 2018, he said.

Mangalore Refinery & Petrochemicals Ltd. has offered 650,000 tons of diesel for loading in October and November, according to data compiled by Bloomberg, two-thirds more than for the previous two months. The refiner is offering more diesel via tenders because it boosted run rates to make up for forced shutdowns earlier this year due to a landslide and water shortage, said a company official, who asked not to be identified because of internal policy.

Indian Oil Corp., the country’s biggest refiner, has offered as much as 130,000 tons of October-loading diesel loading in October. The state-owned company, which is usually an importer of gasoil, had to shut units in at least two refineries in September due to the lower demand, the oil ministry said in a statement this week.

“The recent surge in India’s diesel exports appear to have been a product of sluggish domestic demand and refiners seeking solace in the export markets,” said Peter Lee, an analyst at Fitch Solutions in Singapore. Favorable diesel markets in Europe and North America have also encouraged the shipments, he said.