India’s oil demand likely to hit yet another record in 2025-26

Context: India’s consumption of refined petroleum fuels and products is projected
to hit yet another fresh high in the financial year 2025-26 (FY26) on the back
of steady growth in energy use in various sectors of the economy. According to
latest projections by the Petroleum Planning & Analysis Cell (PPAC) of the
oil ministry, consumption of petroleum products is seen as a proxy for crude
oil demand which has been rising 4.7% over the revised estimate for FY25 to
252.93 million tonnes. The consumption growth is expected to be led by fuels and
products like petrol, aviation turbine fuel (ATF), liquified petroleum gas
(LPG), diesel and petroleum coke.

Key points

·       Overview: India’s crude
oil imports witnessed a significant shift in December 2024, with increased
reliance on West Asian countries like Iraq and the UAE. This adjustment comes
as Russian crude oil supplies dwindled due to heightened domestic demand.

·       Shift
towards West Asia: Russia’s domestic demand surge - Russian refineries
operated at higher capacities post-autumn maintenance, reducing export volumes.
Seasonal demand in Russia capped oil exports, impacting Indian refiners reliant
on Russian crude.

India’s imports
from Russia - Imports of Russian crude dropped 17% to 1.48 million barrels per day
(bpd). Russia’s market share in India’s oil basket declined to 31.5% from 38%
in November.

·       Rising
Role of West Asia in India’s Oil Imports: Iraq’s increased share -
Iraq emerged as a key beneficiary, with imports jumping 29% to 1.13 million
bpd. Iraq’s share in India’s oil imports rose from 18.7% in November to 24% in
December.

UAE’s growing
presence - UAE imports hit a 32-month high of 530,000 bpd, up 22.1% month-on-month.
UAE’s share increased to 11.2% in December, up from 9.2% in November.

Saudi Arabia’s
moderate gains - Imports from Saudi Arabia rose 4.4% to 649,000 bpd. Riyadh’s market
share grew marginally to 13.8%. However, Saudi Arabia was unable to capitalise
on the opportunity due to its barrels being priced higher than Iraqi and
Emirati oil.

·       Price
Dynamics of India’s Oil Imports: Comparative pricing -
Russian Urals crude was priced $5.5 per barrel cheaper than Saudi Arabia’s Arab
Light. Iraq’s Basrah Medium crude was competitively priced, only $0.80 higher
than Dubai crude.

Impact on Indian
refiners - Discounts on Russian crude have shrunk but remain attractive due to
India’s large import volumes. Even marginal cost savings on oil significantly
benefit India, which imports over 85% of its crude needs.

·       Outlook
of India’s Oil Imports: Short-term trends - Russian oil imports are
expected to remain low in early 2025 due to domestic constraints. Indian
refiners are likely to rely more on West Asian suppliers.

Potential
rebound - Russian exports may recover during spring maintenance season,
potentially resuming higher Indian imports by March-April 2025.

·       Conclusion: As the world’s
3rd-largest consumer of crude oil with a high import dependency level of over
85%, India is extremely sensitive to oil prices. The shift in India’s crude oil
sourcing highlights the country’s agility in navigating global oil market
dynamics. While Russia remains a critical supplier, the growing importance of
West Asian nations like Iraq and the UAE underscores India’s strategic approach
to maintaining energy security and cost efficiency.