The new year’s best news for India, is that the Saudi Arabia-led Organisation of Petroleum Exporting Countries (OPEC) is fast losing its grip on the market with a number of countries willing to offer prices even lower than those fixed for Russian crude. Saudi Arabia itself has cut down crude oil prices to boost sales this year. With Russia threatening to overtake Saudi Arabia as the world’s largest crude oil exporter, few oil exporting nations are interested in the routine practice of cutting production to stabilise oil prices. In 2023, Russia was neck and neck with Saudi Arabia in oil export. The Arab country does no longer control the global oil market. Saudi Aramco has already cut down the official selling price of flagship Arab light crude for Asia to their lowest in 27 months. Saudi Arabia has also pruned prices for North America, North West Europe and the Mediterranean. Asia’s top five oil importers are China, India, South Korea, Japan and Taiwan. The Indian government must ensure that domestic oil companies pass on the benefit to end consumers.
The falling oil prices may also force Russia to offer more indirect discounts if it wants to retain the export market it gained at the expense of Saudi Arabia since the middle of 2022. Last year, China and India emerged as the two top importers of cheaper Russian crude. The two major Asian oil consumers and importers accounted for 80 percent of Russian oil exports. Russia has been subjected to a G7 price cap of $60 per barrel. Taking into account the shipping and insurance costs, the landed price of Russian crude on Indian shores continues to remain high. Also, the payment mode created a controversy between India’s public sector oil importers and Russian suppliers. With falling global oil prices in the face of lower demands, India is likely to further diversify its import sources, reducing dependency on Russian supplies during the current year. According to agency reports, India’s crude oil imports from Russia have contracted on payment issues. The Indian Oil Corporation, the country’s biggest refiner, had reportedly used Chinese Yuan and other currencies to pay for Russian oil, last year.
India’s oil import from Russia in December was the lowest since January, last year. Interestingly, earlier this month, India’s oil minister Hardeep Singh Puri said the country’s oil imports from Russia fell due to unattractive pricing and not because of payment problems. Notwithstanding the minister’s statement, the payment problem with Russia has been an issue. Last month, as many as five India-bound oil tankers loaded with light sweet Sokol grade headed to other locations after the US imposed sanctions on some vessels and shippers for not complying with the G7-fixed price cap for oil at Russian ports.
With domestic crude production meeting barely 15 percent of the country’s annual oil requirement, India has been cautious about choosing import sources. The country imports oil from around two dozen countries. The landed cost (c.i.f) of oil is also a key issue. India procures oil from as many as six regions – West Asia, Africa, North America, Russia, South-East Asia and Latin America. Saudi Arabia, the United Arab Emirates, Iraq and Iran have been traditional suppliers. In the Africa region, Nigeria, Angola and Algeria are among the key suppliers. Lately, India established strong trade ties with the US to further diversify the oil supply sources. With its significant oil reserves, Russia has also become an essential partner in India’s pursuit of oil and energy. Malaysia, Indonesia and Vietnam — all having good oil reserves — form significant oil partnerships with India. Brazil with offshore oil fields has emerged as a potential partner in India’s oil supply syndicate.
The International Energy Agency (IEA) expects the slowdown in global oil demand to persist through the current year. In its last November report, IEA said that oil market sentiment had turned “decidedly bearish” in recent weeks. The agency warned that “evidence of a slowdown in oil demand is mounting” with the pace of expansion poised to “slow drastically” from 2.8 million barrels per day year-on-year in the third quarter of 2023 to 1.9 million barrels per day in the next three months of the year. The agency projected the global oil consumption growth to halve in 2024, falling to 1.1 million barrels per day as global economic growth stays below trend in major economies, and as Covid-19-related distortions fade.
Nevertheless, the demand for oil in India is expected to show a decent growth as its economy is slated to expand by around seven percent in 2024. OPEC, in its last month’s report, has projected India’s oil demand in 2024 at 5.59 million barrels per day, up from 5.37 million barrels per day in 2023. On the other hand, the US Energy Information Administration (EIA) said in its report that India’s liquid fuel consumption, including refined petroleum products, is expected to grow at an average of 0.3 million barrels per day. “We forecast India’s demand growth will increase to 331,000 b/d from 268,000 b/d in 2023, helped by favourable base effects and only a slight slowing in GDP growth (6.0 percent in 2024 from 6.1 percent in 2023),” it said. EIA seems to have underestimated India’s economic expansion both in 2023 and 2024. It is expected that the country’s oil consumption growth will be much higher in the current year than what is projected by EIA.
However, despite an expected surge in its economic growth in the coming decade, India’s oil demand is bound to slowly come down as the country is pushing for an increasing use of non-conventional energy. According to S&P Global Commodity insights, India is expected to see the highest ever renewable energy capacity additions at 19 GW, including 16-17 gigawatt solar and 2-3 GW wind, this year. Higher green energy production and lower cost of oil import will further boost the country’s economic growth prospects in the coming years. The falling global petroleum demand and lower prices are certainly good news for heavily import dependent India’s economy. (IPA Service)
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