India’s fuel import bill fell 22.8% on year to $82.3 billion in the first half of the current financial year 2023-2024, owing to lower crude oil prices during most of the period and large discounts offered by Russia, which has acquired a big share in the import basket.
However, the trend may not be sustained in the second half of the year as prices have firmed up of late and may remain at somewhat elevated levels over the next few weeks, analysts say.
“Saudi Arabia and Russia have extended their production cuts till the year end and so the prices have stayed elevated (in the start of H2FY24),” said Prashant Vasisht, senior vice president, Corporate Ratings, ICRA. “Prices have remained in the range of $85-$90 per barrel and hence we can expect H2 import bill to be higher.”
India’s import of Russian oil has been increasing ever since the country started offering discounts on its oil starting May last year. Russia has also increased its discount on oil to India from $16 per barrel in May 2022 to almost $18/bbl in the beginning of the current financial year which also accounted for a lower import bill in H1FY24.
In April, India saved around $1,028 million on its crude oil imports from Russia, as per data provided by ICRA Ratings. Till August, the country has saved $4,355 million on Russian crude oil imports.
As per the latest data available by ICRA, India imported $4,152 million worth crude oil from Russia in the month of August, followed by Iraq at $2,335 million, and Saudi Arabia at $2,072 million.
Considering the volatility in the oil market since last month, analysts do not see crude prices coming down in the second half of FY24. Not only is this expected to increase country’s import bill but also widen the current account deficit. However, analysts do not see inflation to be a concern.
“CPI (Consumer Price Index) inflation may not be impacted because government has maintained auto fuel prices at some level,” Vasisht said. “This year too, the government is unlikely to increase the prices of auto fuels in the backdrop of elections.”
Currently, Russia is the biggest supplier of crude to India followed by Iraq and Saudi Arabia.
“In the second half of FY24, crude oil imports (both in volume and value terms) will be higher. So, on year, country’s import bill can increase,” said an analyst who did not wish to be identified.
Analysts believe that India will continue to import crude oil at its current level in the upcoming winter season given Russia’s ban on diesel and gasoline exports continue. In such a situation, given that crude prices may further spike owing to the concerns over spread of conflict in Israel to the Middle East, the country’s import bill may see an increase on an annual basis.
“India continues to fulfil its growing crude requirements from across global markets at most optimal price it gets,” said Gaurav Moda, Partner, Energy Sector Leader from EY India. “As volume availability vs price flexibility changes from one source, appropriate rebalancing may happen, though some of this tends to reflect relative bargaining power of the crude sources – in the meantime India will continue to push in its best interests,” he added.
Brent prices on the Intercontinental Exchange touched a level of $93/bbl on Friday, while that of West Texas Intermediate tested a level of $90.18/bbl on the New York Mercantile Exchange as market assesses the escalating conflict in Israel in addition to the supply cuts by Saudi Arabia and Russia.
“If the crude oil supply is not resumed by Russia and Saudi Arabia, crude prices can go up in the first half of 2024. WTI can reach a level of $110-$115/bbl and Brent can go up to $120/bbl,” Manoj Jain, director, Prithvi Finmart had told FE.
Saudi Arabia and Russia had earlier extended their oil supply cuts till December by 1 million barrel per day and 300,000 bpd respectively.
