India's Oil Industry Faces Challenges Amid US Sanctions on Russian Crude and Rising Global Prices

Key Highlights

1. Crude Oil Prices: Brent and WTI oil futures traded flat on Monday, with minor percentage changes reflecting market stability.
2. Demand and Supply Trends: China’s crude surplus eased slightly in December 2024, with strong inventories from refiners leveraging discounted Russian oil.
3. OPEC’s Growth Outlook: OPEC projects 3.1% economic growth in 2025, driven by China and India, pushing higher crude demand and refining costs.
4. India’s Challenges: U.S. sanctions on Russian oil may reduce imports and increase costs, but strategic purchasing could buffer some domestic impacts.

Crude Oil Prices Remain Flat Amid Market Anticipation

• Crude oil futures traded flat on Monday morning as the market awaited the inauguration of Donald Trump as President of the United States.
• At 9.58 am on Monday, March Brent oil futures were at $80.76, down by 0.04 per cent, and March crude oil futures on WTI (West Texas Intermediate) were at $77.42, up by 0.04 per cent. 
• February crude oil futures were trading at ₹6705 on the Multi Commodity Exchange (MCX) during the initial hour of trading on Monday against the previous close of ₹6720, down by 0.22 per cent.
• March futures were trading at ₹6633 against the previous close of ₹6653, down by 0.30 per cent.

China’s Crude Surplus Eases, But Inventories Remain High

• China's surplus crude oil eased slightly in December, but the excess surged in 2024 to more than 1 million barrels per day (bpd) as refiners gobbled up cheaper Russian cargoes.
• China, the world's biggest crude importer, had excess crude oil of about 1.5 million bpd in December, down from 1.77 million bpd in November, according to calculations based on official data.
• For 2024, the surplus of crude was 1.15 million bpd, up from 760,000 bpd in 2023, meaning that refiners likely have strong inventory levels, giving them options on how to deal with the recent spike in oil prices.
• China does not disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.
• The total volume of crude available in December was 15.48 million bpd, consisting of imports of 11.27 million bpd and domestic production of 4.22 million bpd.
• Refineries processed 13.98 million bpd in December, leaving a surplus of 1.5 million bpd available for commercial or strategic storages.

OPEC Predicts Strong Economic Growth and Rising Oil Demand

• The Organisation of Petroleum Exporting Countries, OPEC, has put its 2025 economic growth at 3.1 per cent, painting a picture of high crude demand, which could culminate in higher prices of crude, increased refining cost and high prices of petrol and other petroleum products.
• With the rise in crude oil prices to more than $80 per barrel from $74 per barrel last week, Dangote Petroleum Refinery increased its wholesale price to N950 per litre from N895 per litre, while retail prices rose between N1, 050 and N1, 150 per litre, depending on location in Lagos and its environs. 
• According to OPEC report, the high demand for crude oil will be driven by economic expansion in some countries, including China and India, major buyers of Nigeria’s crude oil. 
• The report stated: “Global economic growth is forecast to grow at 3.1% in 2025, accelerating slightly to 3.2% in 2026. This positive outlook is underpinned by anticipated inflation normalization and corresponding adjustments to monetary policies in major economies. 
• “The services sector is expected to remain the main driver of growth, supported by a gradual rebound in industrial production. For the US, the economic growth forecast in 2025 is revised upward to 2.4%, with 2026 forecast at 2.3%. 
• “China’s economic growth forecast for 2025 remains at 4.7%, with the economic growth forecast for 2026 at 4.6%. India’s economic growth forecast is revised up to 6.5% for 2025 and also expected to expand at the same level in 2026. “Brazil’s economic growth forecast for 2025 is revised up to 2.3% and is expected to rise further to 2.5% in 2026. 
• Russia’s economic growth forecast for 2025 is revised up to 1.9% and is expected to grow by 1.5% in 2026.” Dangote Refinery attributes new ex-depot price to surge in crude prices Meanwhile, Dangote Petroleum Refinery, yesterday, attributed the recent ex-depot price adjustment to high prices of crude oil in the global market.

Expert Opinion: India Faces Challenges with Reduced Russian Oil Imports

• India’s oil industry is expected to face significant challenges following new U.S. sanctions on Russian oil. Imports of Russian crude, which had surged due to discounted prices amid the Russia-Ukraine conflict, are projected to fall sharply to under 800,000 barrels per day by February 2025. 
• This decline, coupled with difficulties in finding oil traders willing to handle Russian crude, will likely lead to higher costs for both traders and consumers. While India’s oil purchases remain guided by its energy security needs, the reduction in Russian oil imports could contribute to global price shocks, impacting the domestic market.
• However, India's limited dependence on Russian oil and its strategic purchasing approach should help mitigate the impact, although higher oil prices remain a concern for the country's energy sector.