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India’s oil supply is unlikely to be affected by the decision of Opec+ -- comprising members of the Organization of the Petroleum Exporting Countries and other leading producers -- to extend output cuts, according to officials at the Ministry of Petroleum and Natural Gas. This is due to the emerging lower global industrial demand outlook and the ongoing discounts on Russian crude.
Opec+ members on Sunday agreed to extend two sets of voluntary production cuts. The grouping extended total production cuts of 5.86 million barrels per day (bpd), or 5.7per cent of global oil demand.
This includes a headline production cut of 3.66 million bpd by a year until the end of 2025. It will also extend the 2.2 million bpd production cut currently being implemented by eight countries, including Saudi Arabia and Russia, by an additional three months until the end of September. This output cut was set to end by June, but would now be phased out over a year from October 2024 to September 2025.
“The latest announcement is a continuation of existing production cuts. It is not expected to change the crude oil supplies to India,” an official said.
Officials noted that temporary fluctuations in oil prices due to soaring logistics costs and piracy risks may have a greater impact on Indian oil supplies. “We are monitoring the situation in the Red Sea and the Persian Gulf. Repeated escalation in geopolitical risk since 2022 has disrupted maritime trade routes in the region. Imports for India have not been majorly affected so far, but the situation remains dynamic,” another official said.
Lower demand
Concerns over declining global demand for oil have kept producing nations worried. While Opec had predicted oil demand rising in the final months of 2024, the pace of demand growth has been uncertain. China’s crude throughput fell 3.3 per cent to 14.36 million bpd (58.79 million tonnes) in April, marking the first monthly year-on-year decline since August 2022, according to Chinese government data.
Officials expect lower demand to keep prices in check as well. After crossing the $90 per barrel level multiple times in early April, Brent crude prices stabilised at the $81-82 level in May. It was trading at $78.84 per barrel at 8.18 pm (IST) on Monday.
However, officials warned that increasing uncertainties in the global economy may force Opec’s hand further, and more output cuts by the multilateral bloc may upset the balance of supplies. Opec’s global oil demand growth forecast for 2024 has remained broadly unchanged since March at 2.2 million bpd.
Opec, an intergovernmental organisation of 13 major oil-producing nations such as Saudi Arabia, Iran, Iraq, and Venezuela, has been labelled a “cartel” by economists. Member countries accounted for an estimated 44 per cent of global oil production and 81.5 per cent of the world’s “proven” oil reserves as of 2018.
Russian discounts
Officials also assure that Indian refiners remain confident of uninterrupted crude supplies at discounted rates. “Discounts on Russian oil had shrunk in mid-2023 but had recovered in later months. There is no indication that discounts may drastically reduce downwards under the current circumstances,” said an official with a state-owned refinery.
As of May, the share of Russian crude in India’s imports remained at 40.9 per cent, slightly less than its historic high of 42 per cent, according to estimates made by global trade intelligence platform Kpler. Imports rose to a 10-month high. This is expected to rise further.
After shrinking for a few months in May last year, the level of discount rebounded later in the year. It has remained in the range of $4-6 per barrel in 2024, so far. Last month, industry sources told Business Standard that crude oil purchases in the first quarter (April-June) of FY25 would remain tilted towards Russia if Brent crude prices remain above $81/barrel.
