COMMODITIES 2025: India's robust oil demand in spotlight, to attract global suppliers

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

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

Despite China's lower demand growth rate, its market size -- over three times larger than India's -- will continue to contribute largely to oil demand by volume terms, yet oil market stakeholders are increasingly turning their focus to the South Asian nation amid expectations of its peak demand scenario coming much later than China's.

"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 a relatively faster growth in oil demand of 3.2%, compared with China's 1.7%," Wu added, emphasizing 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% year over year, lagging India's 180,000 b/d or 3.2% year-over-year growth, Commodity Insights data showed.

"Thanks to GDP growth of almost 5% year over year, India's oil demand is likely to hit 6 million b/d in 2025 or a year later," said Ehsan ul-Haq, an independent oil markets analyst.

"The rising middle class, transportation requirements and industrial expansion are expected to be the key drivers. Freight and aviation sectors are also showing strong consumption. India could become the largest oil demand growth engine in the second half of this decade and could be responsible for [25%] of global oil demand growth in the next 20 years," ul-Haq added.

Refining expansion strategy intact

The International Energy Agency forecasts that India will lead global oil demand growth, with consumption expected to rise from 5.4 million b/d in 2023 to 6.7 million b/d by 2030, reinforcing its position as a global energy powerhouse.

"Major Indian oil companies are responding to this demand by investing heavily in refining and petrochemical infrastructure," said Rajat Kapoor, managing director for oil and gas at Synergy Consulting.

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 potential to generate incremental annual feedstock demand of up to 9 million mt.

Dubbed the "jewel of the desert," HPCL Rajasthan Refinery Ltd. -- an integrated refinery and petrochemical complex with a 9 million mt/year 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% imported medium-grade crude, with the rest being domestic crude.

"While the refining industry across the globe is facing headwinds, this trend contrasts sharply with India's trajectory, where both new refineries and expansions of existing facilities are expected to come online in the foreseeable future," Kapoor said.

"The expansion comes as domestic consumption continues to rise, straining the current capacity of nearly 255 million mt/year. The country's push to boost oil refining infrastructure ensures that the nation will remain a key engine of global oil demand," Kapoor added.

Crude diversification efforts intensify

As India's refining capacity is set to rise, refiners and policymakers are intensifying efforts to diversify the crude import basket to reduce overdependence 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 bilateral talks between the two countries have opened opportunities for India to expand crude oil purchases from Guyana, which supplied a couple of trial crude cargoes to Indian refiners in 2021.

"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," said Abhishek Ranjan, South Asia oil research lead at Commodity Insights.

"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," Ranjan added.

Although Russian crude's share in India's import basket has been hovering around 40%, future flows remain uncertain as the market awaits decisions from US President-elect Donald Trump after he takes office in January, analysts 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, with Russian oil falling in that category due to attractive discounts.

Over January-September, India's Russian crude imports averaged 1.7 million b/d, making the non-OPEC producer its largest supplier. The US was the fifth-largest supplier, accounting for 215,000 b/d in the same period, S&P Global Commodities at Sea data showed.