India’s Rising Crude Oil Import Bill Amidst Supply Challenges

Key Highlights

1. Petroleum Price Variations: Bitumen, base oil, and fuel oil prices differ by region, reflecting localized market dynamics.
2. Rising Import Dependency: India’s crude oil import reliance increased to 88.2%, with a higher bill due to reduced Russian discounts.
3. Supply Chain Shifts: Indian refiners are securing long-term US oil and LNG deals amid geopolitical uncertainties.
4. Market Outlook: Crude prices remain volatile, with OPEC+ cuts and geopolitical factors influencing India’s energy costs.

Petroleum Prices: Regional Variations and Market Trends

• In the Indian market, bitumen prices vary across regions, with Roadgrip Bitumen (VG40) in Karwar priced at ₹36,440.68/MT, while Refinery Bitumen (VG30) in Chennai stands at ₹45,352/MT. 
• Roadgrip Bitumen Emulsion (RS 1) in Pithampur is available at ₹31,900/MT. Base oil prices also differ by location, with N150 in Delhi at ₹67.5/LTR and N150 in Mundra at ₹61.25/LTR. 
• Fuel Oil (Virgin 180cST Furnace Oil) in Mundra is priced at ₹48.5/KG. Additionally, Lubriedge Rubber Process Oil (Paraffinic 245) in Delhi is listed at ₹72/LTR.

Shifting Supply Chains: Impact of US-Russia Dynamics

• India’s crude oil import bill for the first ten months of FY25 rose by 2.7% to $113.9 billion, reflecting the country’s growing reliance on imported crude oil. Import volumes increased to 200.5 million tonne, up from 195.2 million tonne in the same period last year. 
• This trend underscores India’s rising energy demand, driven by economic growth, urbanization, and industrial activity. Despite efforts to boost domestic production, India’s reliance on crude oil imports has climbed to 88.2%, up from 87.6% in FY24, highlighting the widening gap between domestic supply and demand.  
• The decline in Russian crude discounts has further strained India’s import bill. Earlier, India benefited from discounted Russian oil following Western sanctions, but reduced discounts and US sanctions on Russia have created supply uncertainties.
• This has forced Indian refiners to diversify their sourcing, often at higher costs. Additionally, the global crude market remains volatile due to geopolitical tensions, OPEC+ production cuts, and fluctuating demand from major economies like China.  
• To address these challenges, India is increasingly turning to the US for crude oil and LNG supplies. The US has emerged as a key supplier, offering stable and diversified energy sources. 
• This shift aligns with India’s long-term goal of enhancing energy security and reducing dependence on any single supplier. 
• However, the reliance on imports continues to expose India to global price fluctuations and supply disruptions, necessitating a balanced approach to energy procurement and domestic production.

India’s Growing Crude Oil Import Dependency

• India’s crude oil import bill for April-January FY25 reached $113.9 billion, a 2.7% increase from the same period in FY24. Import volumes also rose by 2.7% to 200.5 million tonne, reflecting higher demand. 
• However, January 2024 saw a 6% decline in the import bill and a 3.2% drop in volumes, signaling potential short-term demand softening or inventory adjustments.  
• The US sanctions on Russia have disrupted India’s crude oil supply chain, forcing refiners to seek alternatives. Indian Oil and GAIL India are in talks with US energy firms like Cheniere Energy for long-term LNG supply agreements. 
• During Prime Minister Modi’s recent US visit, both nations reaffirmed their commitment to expanding energy trade, with India aiming to increase oil and gas purchases from the US to $25 billion annually, up from $15 billion in FY24. 
• Russia remains India’s largest crude supplier, accounting for 31% of imports in December 2023. However, the reduced discounts on Russian crude and the need to diversify sourcing have pushed Indian refiners to explore other markets, including the US and the Middle East. This diversification is critical to mitigating supply risks and ensuring energy security.

Expert Opinion: Future Trends in India’s Energy Sector

• The market expects India’s crude oil import bill to remain elevated in FY25, driven by rising demand and reduced discounts on Russian crude. Analysts project the net import bill to reach $101-104 billion, up from $96.1 billion in FY24. Increased US crude and LNG supplies are likely to enhance energy security and stabilize prices. 
• However, geopolitical tensions and OPEC+ production cuts could keep global crude prices volatile, impacting India’s import costs. The government’s push to raise natural gas’s share in the energy mix to 15% by 2030 is expected to drive higher LNG imports, particularly from the US. 
• Overall, the market anticipates a gradual shift towards diversified and sustainable energy sourcing to meet India’s growing demand.