India Weighs Shift To Iraq, UAE For Oil Imports Amid Lower Crude Prices

Industry sources indicate that India's crude oil purchases for the first quarter of 2024-25 (April-June) will favour Russia if Brent crude prices remain above $81 per barrel.

However, should prices dip below this level, even briefly, India may pivot towards imports from Iraq and the United Arab Emirates (UAE). This strategy is driven by India's need to manage its import costs, as it relies on imports for 85% of its energy needs.

On Wednesday, crude oil prices dropped to a two-month low of Rs 79.87 per barrel due to the International Energy Agency's (IEA) prediction of low demand growth.

Brent crude was trading at Rs 80.38 a barrel on Thursday at the time of writing. The way that India approaches imports is significantly shaped by this price fluctuation.

India aims to diversify its crude oil sources and increase imports from traditional partners like Iraq, Saudi Arabia, and the UAE. Despite these intentions, the short-term discounts offered by Russia are expected to remain higher, making Russian crude more attractive to Indian refiners.

Officials from state-owned refineries note that after a decline in mid-2023, Russian crude discounts rebounded and have remained between $4-6 per barrel throughout 2024.

Historically, Iraq has been India's largest oil supplier. Beginning in late June 2023, Iraq undercut Russia by offering a range of crudes that averaged $9 per barrel less than Russian oil.

This price-sensitive market shift led to a significant increase in Iraqi crude imports.

China's industrial output, a key indicator of global oil demand, grew by 6.7% year-on-year in April, up from 4.5% in March, suggesting stronger future demand.

This acceleration in manufacturing has contributed to a recent rise in oil prices. Brent crude oil increased by 39 cents, or 0.47%, to $83.66 a barrel, while U.S. West Texas Intermediate (WTI) crude rose by 22 cents, or 0.28%, to $79.45.

Despite these gains, oil broker PVM's Tamas Varga noted that the market's recovery from its recent slump has been sluggish, partly due to weak product demand depressing refining margins.

Geopolitical tensions, such as a fire at Russia's Tuapse oil refinery caused by a Ukrainian drone attack, further complicate market dynamics.

Optimism over demand has been bolstered by declining oil and refined product inventories at global trading hubs, reversing a trend of rising stockpiles.

Additionally, recent U.S. consumer price data showed less-than-expected inflation, which could lead to lower interest rates. Lower U.S. interest rates may weaken the dollar, making oil cheaper for investors using other currencies.

India's crude oil import data reflects these market conditions. As of April, India imported over 1.72 million barrels per day (b/d) from Russia, the highest level in nine months.

Russia's market share in India rose to 40% in April, up from 30% the previous month, according to Vortexa, a London-based commodity data analytics provider. This increase came despite rising U.S. sanctions on Russia-related shipping companies and narrowing discounts on Russian Ural crude against Brent.

The upcoming OPEC+ meeting on June 1 is expected to provide further direction for the market. Meanwhile, India's strategy to leverage price fluctuations remains critical to managing its energy costs and ensuring a stable supply of crude oil.

The country's ability to adapt to these market conditions, balancing between traditional suppliers and advantageous deals from Russia, will be essential in navigating the complexities of the global oil market.

News Agency Inputs