Global Oil Markets Face Supply Shifts Amid Sanctions and Rising Inventories

Key Highlights

1. Price Trends: Brent futures reached $77.20, WTI futures rose to $74.17, and Indian MCX crude futures gained marginally amid tightening global supplies and rising demand.
2. Demand-Supply Shifts: Europe’s gasoline inventories increased, but overall product stocks declined. U.S. crude inventories dropped, while refinery utilization climbed to 93.3%.
3. India’s Import Strategy: India’s crude imports grew by 4%, with a shift toward Middle Eastern and African oil to offset declines from Russian supplies due to sanctions.
4. Global Geopolitics: Western sanctions on Russian and Iranian oil have tightened global supply chains. China's growing reliance on Middle Eastern oil adds further complexity.

Crude Oil Prices Rise Amid Tight Supplies and Cold Weather Demand

• Crude oil futures traded higher on Friday morning as the market anticipated increased demand for heating oil due to cold weather in the US and Europe.
• At 9:58 a.m. on Friday, March Brent oil futures were at $77.20, up by 0.36 percent, and February crude oil futures on WTI (West Texas Intermediate) were at $74.17, up by 0.34 percent.  
• During the initial hour of trading on Friday, January crude oil futures were trading at ₹6375 on Multi Commodity Exchange (MCX) against the previous close of ₹6372, up by 0.05 percent, and February futures were trading at ₹6343 against the previous close of ₹6338, up by 0.08 percent.

Petroleum Demand and Supply: Rising Inventories and Global Trade Shifts

• In Europe, refined product inventories in the ARA (Amsterdam, Rotterdam, Antwerp) region increased by 50,000 weekly to 6.77 million tonnes. The increase was driven by gasoline stocks, which grew by 120,000 tonnes. 
• All other products saw a decline in inventories, with gasoil stocks falling by 35,000 tonnes. However, with gasoil inventories still standing at 2.47 million tonnes, they are at very comfortable levels for this time of the year, ING Think’s Commodities Feed said.
• January natural gas futures were trading at ₹320.90 on MCX during the initial hour of trading on Friday, down by 1.56 percent from the previous close of ₹326.
• Crude oil prices advanced by 1.03%, settling at ₹6,372, driven by tightening supply conditions and a decline in U.S. crude inventories. 
• Supply reductions from OPEC members, particularly Russia and Iran, have supported prices. 
• Russia’s oil output in December averaged 8.971 million barrels per day, falling below targets, while OPEC's overall production declined partly due to losses in Iran. Additionally, sanctions on Russian and Iranian oil have further limited global supplies.
• In the U.S., crude inventories fell by 959,000 barrels to 414.6 million barrels last week, exceeding market expectations for a smaller draw of 184,000 barrels. 
• Stocks at the Cushing, Oklahoma delivery hub dropped by 2.5 million barrels, reflecting robust demand. Refinery crude runs increased by 45,000 barrels per day, pushing utilization rates to 93.3%. 
• Meanwhile, gasoline inventories surged by 6.3 million barrels, and distillate stockpiles rose by 6.1 million barrels, far exceeding forecasts.
• On a broader scale, U.S. crude oil production reached a record 13.46 million barrels per day in October, alongside the highest demand levels since the pandemic. 
• Total (EPA: TTEF) product supplied increased to 21.01 million barrels per day, underscoring a rebound in demand, particularly for distillate fuel oil.

Crude Oil Dynamics: Shifts Amid Sanctions and Regional Supply Adjustments

• As less oil is likely to be available from Russia due to Western sanctions, Indian refiners have started to make up the shortfall by purchasing more Middle Eastern and African crude grades. 
• “India already imported more Middle Eastern barrels in December, with an increase mostly in Iraqi and UAE (United Arab Emirates) grades, Emma Li, senior market analyst at Vortexa told Invezz. 
• The Western powers, especially the US, UK, and Europe have recently threatened to impose further sanctions on tankers carrying Russian oil. 
• In addition, incumbent US President Joe Biden was also planning to impose further sanctions on Russian crude oil exports before Republican Donald Trump took office at the White House on January 20. 
• In such a scenario, the oil supply from Russia is likely to be affected. 
• There were also concerns that Iranian crude oil exports would be affected under Trump’s presidency. 
• Trump is likely to pursue stricter compliance with sanctions against Iran, something the Biden administration avoided. 
• Most of Iranian crude oil is exported to China currently. However, recent reports have suggested even China was importing more Middle Eastern oil in the last few weeks.

Expert Opinion on India’s Evolving Crude Oil Sourcing Strategy

• 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.  Higher imports from Iraq offset declines from Russia, the data showed. 
• India’s crude oil imports from Russia declined by 13% on a month-on-month basis to just shy of 1.40 million barrels per day during December, Vortexa data showed.