India, the world’s third-largest oil consumer with a demand of approximately 4.5 million barrels per day, is reducing its dependence on OPEC for oil imports. As per a report by Reuters, the share of OPEC in India’s total oil import fell to 78.3 percent in FY 20, lowest in 19 years. This comes as India WTI crude oil imports from the USA have increased.
India imports 80 percent of its total oil needs and the majority of it comes from members of the Organisation of Petroleum Exporting Countries (OPEC). But in the last few years, India is diversifying its oil import kitty and American oil companies, which sell WTI crude (India traditionally used only Brent crude, imported from Arab nations, which is relatively costlier) are the major beneficiaries of diversification by Indian refiners. “In the last three years, refiners have invested money to enhance flexibility to process cheaper, heavier grades to improve margins,” said R. Ramachandran, head of refineries at Bharat Petroleum Corp.
India’s import of WTI crude from the United States increased from 3 percent in FY 19 to 4.5 percent in FY 20, while imports from the Mediterranean also increased from 2.5 percent to 4.9 percent. The WTI crude processed in India now accounts for double-digit figures of total processing from single-digit a few years ago.
For FY 20, the United States became the seventh-largest exporter of crude oil to India from the ninth-largest a year ago. Iraq remains the largest oil supplier to the country followed by desert kingdom Saudi Arabia.
A few days ago, Indian Oil Corporation, the biggest Indian refiner, issued a tender to import 24 million barrels of WTI crude from the United States between October this year to March next year, which means the second half of the Indian financial year.
WTI crude trades below Brent crude in the market. For example, today Brent is trading at 40 dollars per barrel while WTI at 38 dollars per barrel, and therefore, for refiners, it is beneficial to increase the share of WTI crude in total refined oil.
Moreover, India is trying to bridge the trade deficit with the United States, which is a precursor for enjoying a healthy relationship with the Trump administration.
The Trump administration had complained about a huge trade deficit with India since assuming power, and the reduction in the deficit will bring both countries closer as American complaints are being addressed. “It (gas and oil) is a completely new import on India’s part from the US and will directly result in bringing down America’s trade deficit with us,” said an official.
The US has emerged as the top crude producer with 12 million barrels per day, ahead of Russia and Saudi Arabia. The US does not seem to have any plan to reduce shale oil production in the upcoming months. In fact, American companies have planned to increase production, and due to this, WTI crude was trading at a negative price a few months ago.
In 2018, the US became a net oil exporter for the first time in 75 years. The majority of US oil is flowing to Asian countries like China, India, Taiwan, South Korea, and Japan. The flow of US shale oil to the international market will keep the global crude prices low. So the price of oil is going to be low in the upcoming year which is great news for the Indian economy amid these testing times. Also, the US has offered to sell oil to India at concessional terms in order to grab a larger share in the new market.
