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Informist, Tuesday, Oct. 8, 2024

 

By Taniva Singha Roy and Ashutosh Pati

 

MUMBAI – India is likely to import more crude oil from Russia in the coming months as escalation of tensions in West Asia could cripple oil supply from the region, said analysts. As Russian oil is available at a discount to other crude grades, particularly from Saudi Arabia, India could import more from Moscow, thereby reducing its import bill.

 

In addition, Saudi Aramco over the weekend increased the official selling price of its Arab Light crude oil for buyers in Asia for November. This could also prompt the government to import more from Russia. Russia remains the top supplier of oil to India, followed by Iraq and Saudi Arabia, and analysts believe Moscow's share in India's oil import basket is likely to rise further.

 

India's crude oil imports from Russia rose 11.5% on month in September to 1.79 million barrels of oil per day in September against 1.61 million barrels per day in August, media reports said, citing data from Vortexa. Amid escalating tension in West Asia, India can rely on Russia for a safe and continuous supply of oil, said Ajay Kedia, director at Kedia Capital. We have imported around $14.7 billion worth of oil from Russia in the June quarter. Stability in terms of supply and lower freight rates have led to higher imports from Russia, said Kedia.

 

Savings related to the purchase of Russian crude were $2 billion in Sept-Feb for the financial year 2023-24, according to a report by Investment Information and Credit Rating Agency of India Ltd. The discount was, however, around $5.8 billion in Apr-Aug FY24, it said in a report dated April 2024.

 

In September, around 38% of India's total crude oil imports were from Russia. Iraq ranked second at 894,000 barrels per day, or 19% of the total imports, while Saudi Arabia ranked third at 688,000 barrels per day, or 14.6% of the total imports, according to Vortexa. Discounted crude yields significant savings on India's oil imports.

 

During the previous month, there was a dip in crude oil imports from Russia by 17% on month to 1.61 million barrels owing to lower demand as many Indian refineries went under planned maintenance.

 

However, as refinery outages are out of the picture with the monsoon season ending, imports will rise due to strong domestic demand. "In the coming months, we can see an increase in imports as the monsoon season is out of the picture and there will be less occurrence of refinery outages," said Shweta Shah, energy analyst at Motilal Oswal. Refineries go on planned maintenance during monsoon as the demand for crude oil is less during that time. Fuel and petroleum product demand lowers during the season as rainfall reduces the need for diesel-powered irrigation and farm machinery use.

 

Russian oil comes to India through the Strait of Hormuz route, which is cheaper, while the oil supply from Washington remains disrupted due to a spurt in freight rates since the Red Sea crisis. Domestic companies use the Red Sea route through the Suez Canal to trade with North America, North Africa, and part of West Asia. During the crisis in the Red Sea route, where the Yemen-backed Houthi rebels launched frequent attacks on commercial shipping vessels plying along the route as a fallout of the Israeli-Palestinian war, there were disruptions in shipment activities.

Moreover, as of now, there is no hurdle to imports from Russia till the US presidential elections in November. Until the new government forms in the US and there are some policy changes, or further rate cuts, India will continue importing oil from Russia, Manoj Jain, director, Prithvi Finmart, said.

 

In addition, India has a Vostro account with Russia, Kedia said. This has given crude oil imports from Russia an edge over imports from other countries as it enables the transaction to be carried out in rupees.

 

No one can compete with Russia, as it is a big bargain-hunter and its market share in terms of imports by other countries is likely to remain the highest, said Shah. June, July, and August are always lacklustre months for India because of the monsoon. Hence, imports were lower in August compared to the previous month, said Shah. "But we can see imports from Russia only rising in the coming months," he said.

 

PRICE OUTLOOK 
Prices might be on an uptrend due to the ongoing tensions in West Asia, but are unlikely to see steep hikes as the concerns of a slowdown in demand growth loom large. The Organization of the Petroleum Exporting Countries has slightly revised downward its forecasts for growth in global oil demand for 2024 and 2025. The growth forecast for 2024 has been trimmed by nearly 100,000 barrels per day to 2.0 million barrels per day this year, but still well above the historical average of 1.4 million barrels per day prior to the pandemic, OPEC said in its September Oil Market Report. The cartel sees demand for crude oil in 2025 rising by 1.7 million barrels per day, down 40,000 barrels per day from the previous month's estimate.

 

At the time of writing, the price of WTI crude was $75.90 per barrel, down 1.6% from the previous close, while that of Brent was $79.70 per barrel, up 1.5%.

 

Prices will not see a substantial increase due to demand slowdown concerns, but if the war risk persists, prices of West Texas Intermediate could be around $77-78 per barrel and if the fear subsides, prices will be in the range of $68-72 in the near term, analysts said.

 

Prices are likely to be $80-82 per barrel for Brent in the near term if tensions in West Asia continue. Domestic crude oil prices on the Multi Commodity Exchange Ltd. are seen around INR 5,900 per barrel if tensions ease and INR 6,500 per barrel otherwise, they said. At the time of writing, the most-active October crude oil contract on MCX was at INR 6,365 per barrel, down 1.7% from the previous close.

 

Prices had cooled off recently due to OPEC and Libyan output restoration. The Joint Ministerial Monitoring Committee of OPEC on Wednesday kept its policy of rolling back some of the voluntary cuts from December unchanged.

 

However, after West Asian tensions and stimulus measures by China to boost the economy, prices rallied. The People's Bank of China unveiled a slew of stimulus measures on Sept. 24, including increased liquidity measures and looser restrictions on the property market. These measures led to hope that economic growth in the world's largest oil importer would improve, and oil prices rose nearly 3% from the previous close to $72.40 per barrel.

 

Last month, demand concerns from China and the US had put oil at almost a year low of $65.27 per barrel. The global markets, especially India, cheered the dipping prices and New Delhi scrapped the windfall tax on crude oil, which boosted oil stocks. However, Iran launched multiple air strikes on Israel on Oct. 1, and supply risks from the spill-over of the Israel-Palestine war to wider oil producers such as Iran have pushed up prices.

 

However, prices are unlikely to rise significantly despite the ongoing crisis between Iran and Israel, as this time, market participants are waiting for concrete evidence of supply disruptions before pushing up crude oil prices, Motilal Oswal said in a report.

 

In terms of domestic refined crude oil products such as diesel and petrol, there is not going to be any major change, analysts said. Domestic petrol prices are already high, so the government will refrain from increasing them any more. However, the Centre was planning to slash petrol prices, but they will hold back for the time being due to the ongoing geopolitical tensions, Jain said.  End

 

US$1 = INR 83.96

 

Edited by Manisha Baxla

 

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