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With the country's crude oil output under pressure, India has
been increasingly dependent on imported barrels to meet domestic
requirements. Volumes internally produced, has dropped by around 7%
so far in 2019 year-on-year, pushing the ratio of imports vs total
consumption above 85% from below 84% a year ago. Policy reforms and
initiatives taken haven't proved enough to support India's output,
making the country vulnerable to geopolitics. India has been
struggling during the last couple of years, with huge losses
suffered, as the weakening Rupee has been affecting trade balances.
New Delhi has been trying to cut oil import dependence, with PM
Modi having set a target of 10% in 2015, the ratio of imports only
stood at 77% back then. The country's oil minister Dharmendra
Pradhan recently commented that state-owned oil companies should
boost overseas borrowings, instead of relying on traditional
domestic routes. The local economy is expected to grow at 7%.
Focusing on imports, India's largest oil refinery considers
cutting crude capacity, to reduce costs which has already reached
USD 60 billion, having surpassed by far initial plans for USD 44
billion. India has been planning to build the massive refinery in
Maharashtra, on the West Coast, together with state oil companies
of Saudi Arabia and the UAE. A year has passed since Saudi Aramco
and the Abu Dhabi National Oil Company (ADNOC) signed a deal to
jointly own 50% of the new joint venture company RRPCL, while the
other half will be held by Indian national oil companies. This
project would allow Saudi Arabia and the UAE to strengthen their
market share in the fast-growing oil market of India. However,
strict environmental regulations requiring expensive technology
will cost a lot more than initially expected. Costs also increased
due to delayed land acquisition, as opposition from local farmers
has been strong, so much so the site had to be relocated.
Moving to the country's demand for oil products, levels are
expected to be quite healthy in the second half of 2019, with a
recovery on the horizon. Now that elections are over, the
government is determined to support most major sectors to aid
recovery. Volumes were down about 1% year-on-year between January
and June 2019, primarily driven by a slowdown in auto demand.
However, optimism has risen as the central bank decided to loosen
the monetary policy and cut interest rates, which will support the
market. Oil demand will start picking up year-on-year in H2
2019.
Focusing on India's crude oil imports, as shown by IHS Markit Commodities at Sea,
volumes have remained unchanged in July, after declining 4%
month-on-month in May and June. Volumes so far in 2019 have been
down around 3.3% year-on-year, but a recovery is expected in the
second half of this year. Major exporters in the Middle East Gulf
and West Africa continue to dominate the Indian market, but it's
interesting to note that flows from American exporters, including
USA, Mexico and Venezuela, remain strong and stable.
Posted 14 August 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime, Trade & Supply Chain, S&P Global Market Intelligence
