India's Petroleum Exports Decline Amid Weak Demand and Logistical Challenges

Key Highlights:

• Crude Oil Futures: Brent and WTI crude oil futures rose modestly, reflecting market optimism after China's economic statements.
• Petroleum Export Decline: India’s petroleum exports dropped 18.9% from April-November 2024 due to weak demand, lower prices, and Red Sea disruptions.
• Logistical Challenges: Iran-backed disruptions and rerouted shipping via the Cape of Good Hope increased transit costs for Indian exporters.
• Expert Outlook: Despite short-term challenges, India’s domestic oil demand is projected to grow strongly, supporting long-term market resilience.

Crude Oil and Petroleum Trends: Key Insights and Market Challenges

• Crude oil futures traded higher on Thursday morning after the Chinese President, Xi Jinping, expressed hopes for better economic progress in 2025.
• March Brent oil futures were at $74.86, up by 0.29 per cent, and February crude oil futures on WTI (West Texas Intermediate) were at $71.95, up by 0.32 per cent.
• January crude oil futures were trading at ₹6183 on the Multi Commodity Exchange (MCX) during the initial hour of trading on Thursday, against the previous close of ₹6171, up by 0.19 per cent.
• February futures were trading at ₹6181, against the previous close of ₹6164, up by 0.28 per cent.

India’s Petroleum Export Decline: Impact, Causes, and Future Outlook

• India’s petroleum product exports have faced a significant decline in value, dropping from $55.02 billion in the April-November period of 2023 to $44.61 billion in the same period of 2024. 
• This marks a sharp reduction in export values. The impact of lower product prices and crack spreads amidst subdued global oil prices has contributed to this downturn. In November 2024, exports stood at $3.72 billion, down from $7.39 billion during the same period last year.
• The decline in petroleum exports is attributed to weak demand from developed economies and a rise in domestic consumption. Furthermore, India’s crude oil imports from Russia also saw a sharp drop in November 2024, declining by about 55%. 
• A drop in demand from the chemicals industry, which uses petroleum products like naphtha, has also added pressure on export volumes. The logistical disruptions along key supply routes, particularly in the Red Sea region, have further exacerbated the situation.
• India’s petroleum export performance has been impacted by the disruptions in the Red Sea, where Iran-backed Houthi rebels have caused trade interruptions since October 2023. This has led to increased shipping costs and longer transit times for Indian exporters, with container ships bypassing the Suez Canal and rerouting via the Cape of Good Hope. 
• Additionally, new refineries in regions like Nigeria are better positioned to cater to European demand, posing further competition to India's petroleum exports.

Petroleum Market in Transition: Key Developments and Predictions for 2025

• WTI crude oil (CL) pushes above $70 and approaches the resistance zone at $72 during holiday trading. The energy market faces mixed signals. While stimulus in China boosts crude consumption, geopolitical tensions and potential shifts in energy policies contribute to volatility. Despite recent gains in December, crude oil recorded a slight annual loss in 2024.
• On the other hand, natural gas (NG) prices remain volatile as the market balances increased winter demand against ample storage levels. The U.S. Energy Information Administration (EIA) reports 3,529 Bcf in working gas storage, 166 Bcf above the five-year average, as shown in the chart below. 
• This surplus offers a cushion, but the potential for record heating demand keeps the market on edge. A net decrease of 93 Bcf from the previous week highlights the typical seasonal drawdowns. While storage levels appear comfortable, they do not fully alleviate concerns about winter supply.
• Weather forecasts significantly influence natural gas market movements. The cold weather forecast for January has driven a rally in natural gas prices due to strong demand. However, prices have pulled back from resistance due to profit-taking and are now positioning for the next move higher. The interaction between weather conditions and storage levels is expected to drive near-term price trends.

Expert Opinion on Petroleum Market Outlook

• Looking ahead, experts predict that India’s petroleum export market may continue to face pressure due to subdued global demand, softening oil prices, and logistical challenges. 
• However, India’s domestic oil demand growth remains strong, expected to surpass China’s in 2024, and is projected to accelerate in 2025. As India focuses on expanding its refinery capacity, the long-term outlook for the country’s oil consumption is positive, though recovery in exports may take time given the existing headwinds.