India's Crude Import Strategy Shifts Amid Russian Dominance

Key Highlights

• Price Movements: Crude oil prices rose slightly, with February Brent futures at $72.25 (+0.57%) and January WTI futures at $68.39 (+0.57%).
• China’s Role: A rise in China’s PMI to 51.5 signals strengthening demand, making China a key driver for crude oil markets.
• Geopolitical Impact: West Asian tensions and upcoming OPEC+ discussions add volatility, with expected output adjustments for 2025.
• Shift in Trade Dynamics: Kuwait’s crude exports to Japan dropped 46.4% YoY in October, reflecting broader shifts in global oil supply and demand patterns.

Crude Oil Prices See Modest Gains

• Crude oil futures traded higher on Monday morning supported by the latest data showing improved manufacturing activity in China.
• February Brent oil futures were at $72.25, up by 0.57 per cent, and January crude oil futures on WTI (West Texas Intermediate) were at $68.39, up by 0.57 per cent.
• December crude oil futures were trading at ₹5801 on Multi Commodity Exchange (MCX)during the initial hour of trading on Monday against the previous close of ₹5814, down by 0.22 per cent, and January futures were trading at ₹5795 against the previous close of ₹5808, down by 0.22 per cent.

China’s Economic Revival Boosts Oil Demand

• The Caixin China General Manufacturing PMI increased to 51.5 in November from 50.3 in October. Market was expecting it to be at 50.5. This growth was driven by the increase in foreign orders since February 2023 and exports.
• China is a major consumer of crude oil in the global market, and an improvement in economic activities in that country would help boost the demand for commodities such as crude oil.
• Crude oil prices were also supported by tensions in West Asia region. Israel and Lebanon, which agreed for a ceasefire on Wednesday, have accused each other of violating the ceasefire conditions.
• Meanwhile, Iran extended its support to Syrian government after insurgents took control of Syria’s Aleppo city. Market players feel that increase in tensions in West Asia could lead to supply disruptions from the region.
• OPEC+ (Organization of the Petroleum Exporting Countries, and allies) will hold its meeting on December 5 to discuss output policy for 2025. The meeting was originally scheduled for December 1.
• In their Commodities Daily feed, Warren Patterson, Head of Commodities Strategy of ING Think, and Ewa Manthey, Commodities Strategist, said a handful of OPEC+ members are set to gradually bring 2.2 million barrels a day of supply back onto the market next year. However, the oil balance does not need this additional supply as it will push the market into a large surplus.

West Asian Tensions Keep Supply Risks High

• Kuwait's crude oil exports to Japan in October fell 46.4 percent from a year earlier to 2.04 million barrels, or 66,000 barrels per day (bpd), down for the 13th consecutive month, government data showed Friday.
• As Japan's fourth-biggest oil provider, Kuwait supplied 3.1 percent of the country's total crude imports, compared with 5.3 percent in the same month of last year, the Japanese Natural Resources and Energy Agency said in a preliminary report.
• Japan's overall imports of crude oil in October shrank 7.2 percent from a year earlier to 2.14 million bpd, down for the 11th month in a row. Shipments from the Middle East accounted for 97.8 percent of the total, up 5.8 percentage points from the year before.
• The United Arab Emirates (UAE) was Japan's top oil supplier last month, with imports from the country increasing 9.6 percent from a year earlier to 1.02 million bpd, followed by Saudi Arabia with 896,000 bpd, down 8.4 percent.
• Qatar ranked third with 87,000 bpd and the Khafji Neutral Zone fifth with 23,000 bpd, respectively. Japan is the world's-third biggest oil consumer after China and the US.

Expert Opinion: Global Trade Adjustments Reflect Shifting Oil Dynamics

• India's crude oil market is expected to remain heavily reliant on imports, with Russian crude maintaining a significant share due to competitive pricing. However, shifts in Middle Eastern pricing strategies could influence sourcing decisions.
• While domestic demand is seasonally strong in Q4, bearish refined product export margins and well-supplied global markets pose downside risks to import volumes in the coming months.
• On the domestic production front, stagnant output is projected to see incremental growth, with ONGC’s KG-98/2 field expected to significantly boost oil and gas production by FY25. Additionally, the government is progressing toward a term deal with Russia to secure long-term crude supplies, ensuring stability amid evolving global market dynamics.