The share of India’s traditional crude oil suppliers in the Middle East, which is already facing stiff competition from Russia, is expected to decline as the world’s third-largest importer eyes long-term contracts from Guyana.

According to the S&P Global Commodity Insights, India is set to end the year with its oil demand growth rate surpassing China’s, making it one of the fastest-growing consumption centres, a trend expected to spill over to 2025, prompting the South Asian country’s refiners to accelerate expansion plans and widen crude diversification.

“The share of Middle Eastern crude shipments to India’s basket is likely to drop by a few percentage points due to the diversification [of import sources]. But, overall, the crude grades in India’s import basket are expected to remain medium grades and we don’t anticipate significant drop in share of sour crude in 2025,” said Abhishek Ranjan, South Asia oil research lead at S&P Global Commodity Insights.

According to S&P Global’s Commodities at Sea (CAS) data, India’s crude oil imports from Russia stood at 1.7 million barrels per day (mb/d) from January to September 2024, accounting for more than 40 per cent of the total imports.

Iraq was the second-largest supplier, with 940,000 b/d, while Saudi Arabia supplied 623,000 b/d over the same period, making it the third-largest supplier. Imports from the US stood at 215,000 b/d over January-September, making it the fifth-largest supplier after the UAE, which supplied 423,000 b/d.

Crude diversification

As India’s refining capacity is set to rise, refiners and policymakers are intensifying efforts to diversify the crude import basket to reduce over-dependence on a few supplying countries or regions.

Indian Prime Minister Narendra Modi’s maiden visit to Guyana has bolstered expectations that the country’s refiners are nearing long-term crude oil import agreements with the relatively new South American supplier.

“Recent diplomatic visits will help bring in crude oil from Africa and Latin America, but the growth in absolute volume would depend on the overall crude market,” Ranjan said.

India, which imports as much as 85% of its needs, has pledged to continue buying oil from the cheapest available sources to meet growing demand. Russian oil falls into that category due to attractive discounts.

Refinery expansion

India is set to see significant refining capacity growth in 2025.

The country is just months away from launching its first greenfield integrated refinery complex in nearly a decade, leading to active negotiations with global oil producers for term crude imports for a project with the potential to generate incremental annual feedstock demand of up to 9 million tonnes (MT).

Dubbed the “jewel of the desert,” HPCL’s Rajasthan Refinery, an integrated refinery and petrochemical complex with a 9 MTPA capacity under construction in Pachpadra, Balotra district of Rajasthan, already has certain units in the pre-commissioning stage.

The refinery is designed to process over 83 per cent imported medium-grade crude, with the rest being domestic crude.

Demand growth

“India will be the leading driver, along with Southeast Asia and other parts of South Asia, of the region’s future oil demand growth,” said Kang Wu, global head of macro and oil demand research at S&P Global Commodity Insights.

In 2025, India is forecast to deliver relatively faster growth in oil demand of 3.2 per cent, compared with China’s 1.7 per cent,” he added, emphasising the role of petrochemical feedstock requirements in oil consumption growth in both countries next year.

In the first 10 months of 2024, China’s oil demand rose 148,000 b/d or 0.9 per cent year over year, lagging India’s 180,000 b/d or 3.2 per cent year-over-year growth, S&P Global Commodity Insights data showed.