Domestic crude oil imports soaring, output lags

The global crude oil prices corrected sharply yesterday and a continued decline in the prices would serve well from India's point of view given the massive surge in domestic crude oil imports in recent quarters. Brent Crude oil futures cracked lower yesterday, extending a drop from a four year high as recent choppiness gave way to a full blown correction amid global trade concerns and rising OPEC output. Selling pressure in other key commodities like Copper also hurt sentiments for crude. Global equities tumbled after the Trump administration announced it plans to slap tariffs on a further $200 billion of Chinese imports. Brent prices are now down around 6-7% from $80 per barrel.

There is a strong possibility that oil could maintain this range in coming months. The US Energy Information Administration (EIA) expects Brent crude oil prices to average $73 per barrel in the second half of 2018, then fall to $69 per barrel in 2019. In the July 2018 update of its Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) forecasts that Brent crude oil prices will average $73 per barrel (b) in the second half of 2018 and $69/b in 2019. Oil prices jumped sharply in last one year. Brent crude is still up around 60% over year. Prices jumped nearly 15% in 2017.

However, India's crude oil demand has also gained traction in this period. According to a latest update from India Ratings and Research, India's crude oil dependency has increased, indicated by stagnant domestic production and increased imports since 2012. According to Petroleum Planning & Analysis Cell (PPAC), the average crude oil import dependency was 82.8% of the total crude oil consumption in FY18 compared with 81.7% in FY17. PPAC estimates crude imports of 227 million metric tons (mmt) for FY19 (FY18: 220mmt).

Domestic Crude imports increased 22.5% from a monthly average of 15.1mmt during 1QFY13 to a monthly average of 18.5mmt during the three months ended May 2018 due to sustained demand. On the other hand, domestic crude production has been stagnant over last few years. Crude imports continue to increase despite rising international crude prices since February 2016, thus indicating strong demand for the commodity. Domestic Crude oil production during May, 2018 was 3007.84 TMT which is 1.38% lower than target and 2.95% lower when compared with May 2017. Cumulative crude oil production during April-May, 2018 was 5922.84 TMT which is 0.61% lower than target for the period and 1.92% lower than production during corresponding period of last year.

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