UPDATE 2-Indian refiners' March crude throughput edges up on rising demand

* Refineries crude oil throughput rose 1.8% month-on-month

* New restrictions may weigh on oil demand, processing- analyst

* Indian refiners operated at 98.89% of capacity in March (Adds graphic, comments)

April 20 (Reuters) - Indian refiners’ crude oil processing rose in March from the previous month as fuel demand recovered, although throughput remained marginally lower than a year earlier, highlighting the pandemic’s toll on economic activity.

Refineries’ crude oil throughput rose 1.8% month-on-month to 4.96 million barrels per day (20.99 million tonnes), provisional government data showed on Tuesday. But it fell 1% compared to March last year.

“March oil consumption was close to pre-pandemic levels, so unsurprisingly crude processing remained elevated,” said UBS analyst Giovanni Staunovo.

India’s fuel consumption staged a rebound in March, jumping to its highest level since December 2019 as the economy continued to open up.

However “new mobility restrictions in April might weigh on oil consumption and potentially as well on crude processing,” Staunovo added.

India, the world’s third biggest oil consumer, is currently being hit hardest by the pandemic, with large parts of the country now under lockdown amid a fast-rising second wave of infections.

On an annual basis, India’s crude oil production slipped 3.2% to 620,000 barrels per day (2.61 million tonnes) in March, while its natural gas output rose 11.1% to 2.68 billion cubic metres, the data showed.

“Production is down year-on-year, which does not bode well for the security of supply, because India is becoming too dependent on oil from other countries,” Refinitiv analyst Ehsan Ul Haq said.

Indian refiners operated at an average rate of 98.89% of capacity in March, down from 100.39% in the same month last year but up from February’s 97.13%, the government data showed.

Refineries can operate at more than their usual capacity through technical alterations.

The country’s largest refiner, Indian Oil Corp (IOC) , last month operated its directly owned plants at 100.12% capacity, the data showed.

Reliance, owner of the world’s biggest refining complex, operated its plants at 84.43% capacity in March.

Reporting by Sumita Layek and Bharat Govind Gautam in Bengaluru; Editing by Susan Fenton and Jonathan Oatis