market narrative consuming crude oil markets currently is the interplay between
supply cuts by OPEC and its allies and rising U.S. shale output, with a side
helping of Chinese imports driving demand.
there are solid reasons for industry participants to focus on these dynamics,
there is also the risk of missing out on other factors that help shape the
a factor is India, which has long flown below the radar of the crude oil
market, despite becoming the second-biggest importer in the fast-growing Asian
market behind China, and the third-biggest in the world after the United
is also a market where there is virtually no direct influence being exerted by
U.S. shale oil as the South Asian nation hardly imports any crude from the
also imports a relatively small amount from Russia, the main ally in the
agreement between the Organization of the Petroleum Countries and other producers
to limit output in order to drain excess global inventories, thereby boosting
what makes India important is that itís a major importer of Middle Eastern
crudes, and one of the fastest-growing demand centres in the world.
there are currently some worrying trends for Middle Eastern exporters to India,
especially for the regionís top shipper, Saudi Arabia.
International Energy Agency (IEA) put Indiaís crude oil demand at 4.68 million
barrels per day (bpd) in 2017 in its report released last month, and estimated
that this year will see demand rise to 4.98 million bpd, an increase of 6.4
IEA expects total world oil demand to increase by 1.4 million bpd, which makes
Indiaís expected growth of some 300,000 bpd the most significant source of
growth for crude producers outside of Chinaís expected lift in demand of about
LOOKS BEYOND THE MIDDLE EAST
India has traditionally bought the bulk of its crude oil from the Middle East,
which makes sense give the geographic proximity and the decision of Indiaís
refiners to focus on processing heavier grades through complex plants in order
to maximise the value of fuels produced.
despite the overall growth in Indiaís crude demand in 2017, the volume of imports
from the Middle East dropped by 0.5 percent to around 2.75 million bpd,
according to data obtained from sources and compiled by Thomson Reuters Oil
Research and Forecasts.
Arabia lost its status as Indiaís biggest oil supplier, with imports from the
kingdom dropping 8.9 percent to around 747,900 bpd, the data showed.
losers from the Middle East included Iran, with a 0.5 percent drop to 470,500
bpd, and the United Arab Emirates with a 16.5 percent slump to 288,500 bpd.
regionís winner in exporting to India was Iraq, which increased 12.2 percent to
885,900 bpd, most likely as a result of Baghdadís willingness to offer deeper
discounts on its heavier grades of crude compared to similar grades from other
the Middle East overall was surrendering market share in India, the main
gainers were two Latin American exporters, with Brazilís shipments jumping 53
percent to 94,700 bpd and those from Mexico by 15.8 percent to 155,300 bpd.
smaller suppliers to India, there were some impressive gains from countries
such as Egypt, which was up 23.8 percent to 45,200 bpd, Sudan with a gain of
1,157 percent to 21,900 bpd, and Algeria, which rose 125 percent to 47,700 bpd.
many of these increases were off very small volumes, they have the potential to
become more important in coming years.
Brazil and Mexico can compete in India, despite a sea voyage of at least four
times the distance when compared to cargoes from the Persian Gulf, that should
be a worry for Middle East producers.
refineries have shown they can be quite flexible in the crude slates they
process and it appears that the output cuts instituted by OPEC and its allies
is encouraging more diverse sources of supply.
risk for OPEC and its allies is that this sort of market share is hard to
recover once the self-imposed production cuts are lifted.
And as India shows, the battle is far more than just a simple OPEC and
allies versus U.S. shale producers.