Indian crude and product imports to rise

Nov 03 2018

Higher crude prices and a weaker rupee has led to Indian fuel prices surging.

India, along with China has long been a key driver of world oil demand growth.

Now, with sanctions imminent against one of India’s largest suppliers - Iran - consumers could see further price rises, which may impact on their purchasing power.

Gibson Shipbrokers tried to answer the question - Can the crude market really rely on India to drive demand over the coming years in a higher price environment?

Since the start of 2018, crude prices have risen over 11%. What has become an expensive time for Indian refiners to import US dollar priced crude has been exacerbated by a simultaneous 13% decline of the Indian Rupee vs the dollar.

In real terms, this unwelcome mix has meant a 30% increase for Indian refiners’ crude price. The Reserve Bank of India recently estimated that for $10 increase in a barrel of oil, GDP suffers by 0.15%, potentially impacting on some of the oil demand growth.

In addition, crude import reliance is rising as domestic production fails to grow. Thus, higher crude prices offer zero upside for the Indian economy, Gibson said.

To limit the impact, the government has tried to protect consumers through tax cuts on diesel and gasoline last month and has even asked domestic refiners to sacrifice margins in order to limit price rises.

Despite higher prices, seaborne arrivals in the first two decades of October pointed towards a strong gain, with Kpler reporting an average of 308,000 barrels per day higher crude imports month-on-month than September (a 5% increase year-on-year 3Q17 vs 3Q18).

There have been higher volumes from Nigeria and Latin America, with noticeable arrivals from Venezuela, as well as increasing gains from Iraq.

Indian crude buying has remained strong. Imports have also risen from Iran, with September volumes already up 20% year-on-year, prompting many to ask whether imports from Iran will wind down following the invoking of sanctions.

Indeed, Oil Minister, Dharmendra Pradhan, said India’s intent is to continue lifting Iranian barrels, with Indian refiners reportedly already placing orders to buy 9 mill barrels for November.

Perhaps this is unsurprising when it is considered that heavily discounted Iranian barrels may help the country manage the effect of higher international crude prices. India has even sought to implement a new payment system to purchase Iranian crude in rupees, in order to circumvent US sanctions.

Looking further ahead, irrespective of prices, developments in Indian refining capacity are likely to be the main driving force behind the growth in crude import demand.

Between 2019-2022, 550,000 barrels per day of additional refining capacity is due to come online, roughly the same as demand growth projections over the corresponding period.

Even if domestic demand does falter, high run rates are likely to keep import volumes high. If unexpectedly the domestic market cannot absorb all the product, then refined product export volumes will have to rise, Gibson concluded.




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