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Informist, Tuesday, Jan. 14, 2025

 

By Ashutosh Pati and Taniva Singha Roy

 

MUMBAI – As the latest round of western sanctions on Russia's energy sector threaten to cripple supply from the region, India could shift a major chunk of its crude oil imports to West Asia or even the US, analysts said. However, experts believe market participants will be in a wait-and-watch mode till US President-elect Donald Trump takes office.

 

Even at the cost of a higher import bill, India is likely to shift its imports to the US as supporting Russia could land India on the wrong side of the new US President-elect, by attracting higher import tariffs, said Shweta Shah, energy analyst at Motilal Oswal Financial Services. Trump has promised blanket tariffs of 10-20% on goods from virtually every other country.

 

On Friday, the outgoing US President Joe Biden's administration imposed sanctions on top Russian oil producers Gazprom Neft and Surgutneftegas, Russian insurance companies Ingosstrakh and AlfaStrakhovanie Group, and shadow fleet vessels. "If Trump adds unbearable sanctions on Russia on taking office then I think we have to move towards Saudi and possibly even US going forward," a Mumbai-based analyst said.

 

Currently, the majority of India's crude oil imports are from Russia at discounted prices. India imported around 4.46 million barrels per day of crude oil in December, up nearly 4% on a month-on-month basis, according to data from Vortexa. India's crude oil import bill in the first eight months of 2024-25 (Apr-Mar) rose 5% on year to $91.7 billion, the Ministry of Petroleum and Natural Gas had said in a report.

 

Savings from opting to purchase Russian crude were around $5.1 billion in FY23 and $7.9 billion in the first eleven months of FY24, for a total of $13 billion, according to ICRA Ltd.

 

In 2021, prior to Russian invasion of Ukraine in 2022, India imported 4.2 million barrels per day, of which 24?me from Iraq, 16% from Saudi Arabia, 10% from the US, and 2% from Russia. Gradually since then, the share of imports from Russia climbed to almost 40%, while Iraq's share slipped to 20%, Saudi Arabia's fell to 15%, and the US dropped to 4% in 2022, according to ICRA.

 

India also doubled its imports of Russian oil products from 70,000 barrels per day to 130,000 barrels per day, although this still only amounted to 5% of Russian product exports. By May 2024, Russia accounted for 41% of India's 4.8 million barrels per day in crude imports, while Iraq's share stayed at 20%, Saudi Arabia accounted for only 11%, and share of the US remained at 4%.

 

However, with the sanctions in place, experts see a reversal in the trend in imports. Along with Russia, there are sanctions on the supply of oil on Iran as well. Hence, there is a larger possibility of India importing from the US and other West Asian nations, said Shah. Despite sanctions on Russia, there are several channels through which Russia can export its crude products by making prices even cheaper for India, said Shah.

 

In terms of domestic prices of crude oil products, Shah said that domestic petrol prices could appreciate by around INR 10 per barrel. However, she believes the government won't pass on the increase in price to the consumers as subsidies by the government, if any, could offset the price rise.

 

India's huge oil consumption is met primarily through imports and Russia is one of the top exporters to the country. Government officials said there was no reason to be worried, but one of them said there was a possibility that the discounts Russia offered India on oil deals could be taken away. "If the discounts are discontinued, the supply price will go up a little," the official said.

 

The officials said India is well-positioned to handle the situation and sanctions may push up oil prices only marginally. "We don't anticipate any immediate impact on oil prices as deals and shipments are already on the way," one of the officials said. "If anything, it (the impact) will be marginal."

 

PRICE OUTLOOK

Crude oil prices on the NYMEX surged to a five-month high of $79.27 per barrel Monday, following the fresh sanctions imposed by the US on Russia. The oil market has started the year on a strong foot as prices rose over 5% on the New York Mercantile Exchange over the last week on positive economic data from China and a stronger physical market in West Asia.

 

Warren Patterson, head of commodities strategy at ING Economics, sees that the sanctions could put around 700,000 barrels of Russian crude out of the market. The surplus that was expected in the oil market this year could be wiped out by these sanctions.

 

"The uncertainty over how impactful these sanctions will be, is proving bullish for the oil market," Patterson said in a report. "However, as we saw following the EU (European Union) ban on Russian oil and products imports, Russia managed to redirect trade flows, which meant little impact on Russian export volumes. Potentially, Russia will once again be able to take action to minimise the impact of these latest sanctions," Patterson said.

 

Market participants will now monitor the US Energy Information Administration's monthly Short Term Energy Outlook for January, due later tonight. They will also closely watch Organization of the Petroleum Exporting Countries' and International Energy Agency's monthly oil market reports, both due Wednesday.

 

"The next upside trigger for crude oil prices could be higher demand projections by these organisations," said Sriram Iyer, senior research analyst at Reliance Securities. "If OPEC and the IEA forecast good demand projections for this year, then further upside in prices cannot be ruled out," Iyer said.

 

Moreover, the cartel's decision to lag the pace of increase in supply is also likely to support prices. Eight members of OPEC and its allies--Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman--extended their voluntary production cuts of crude oil till the end of March. OPEC now plans to increase supply at a slower pace, taking 18 months to return to full supply, compared to 12 months earlier.

 

In addition, petrol and heating oil demand will remain high due to the cold wave in the US which could keep crude prices elevated at least this month, said Iyer. Iyer expects Brent Crude to move up to $82-84 per barrel or possibly even $85 per barrel if the forecasts are good enough. However, if the projections are sluggish or in line with market expectations, there could be some correction or profit-taking in prices, he said. On the domestic bourse, prices could reach INR 7,000 per barrel on the Multi Commodity Exchange, he said.

 

At the time of writing, the most active February contract of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $78.57 per barrel, and the most traded March contract of Brent Crude was at $80.76 per barrel, both down 0.3%. On MCX, the most active January crude contract was down 0.7% at INR 6,817 per barrel.  End

 

US$1 = INR 86.63

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

 

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