India, the world’s third-largest oil importer, could be heading into a period of cheaper crude as the global oil market sees a sharp rise in supply. Just days after OPEC+ decided to increase oil production for August, Saudi Arabia announced its biggest oil price cut in at least 26 years. Together, these moves have boosted expectations that the world could soon face an oil supply glut.
According to Ross Maxwell, Global Strategy Operations Lead at VT Markets, the move confirms what the oil market has been showing for several weeks: Asia now has more crude than it needs, and producers are under pressure to attract buyers.
‘Asian crude market is becoming oversupplied’
Saudi Arabia’s deep price cut has come at a time when OPEC+ is also increasing production, adding even more oil to a market that is already well supplied. According to Maxwell demand has remained steady but is not strong enough to absorb the extra supply immediately.
“Saudi Arabia’s decision to reduce its selling prices, combined with OPEC+ increasing production, is creating more supply into a market where demand remains steady but not strong enough to take on the additional supply immediately. Refiners across Asia have greater power as more producers compete for market share, placing downward pressure on regional crude differentials,” Maxwell told Financial Express.
He expects this oversupply to continue over the coming months. If refiners hold back purchases in the hope of securing even lower prices, oil inventories could build further. “Unless demand increases significantly because of stronger industrial activity or seasonal consumption, the market is likely to remain comfortably supplied over the coming months,” he said.
In his view, oil producers are now having to compete on price rather than on supply. While geopolitical tensions remain the biggest risk, the situation is relatively calm for now, with no major threat to physical crude supplies. As long as that continues, oil prices are likely to remain under pressure.
What does this mean for India’s crude basket?
Maxwell believes India is in a strong position to benefit from the global crude oil situation right now. “India has the ability to adjust where it sources its supplies from depending on price competitiveness and shipping economics.”
Meanwhile, cheaper Saudi crude is expected to be especially attractive for state-owned refiners that are looking to reduce their import costs. India’s crude basket is already trading near its post-conflict low of around $68 per barrel. Maxwell expects the discounted Saudi oil to push India’s average import cost even lower in the coming weeks.
Saudi Arabia’s oil exports to India have fallen sharply in recent months. The country supplied around 1 million barrels per day to India in February, but that dropped to just 330,000 barrels per day in June. One of the main reasons was that Saudi crude had become more expensive than several other options available to Asian buyers.
That could now begin to change. Just days ago, state-owned Saudi Aramco announced an $11-per-barrel price cut for its flagship Arab Light crude for August shipments to Asia, offering it at a $1.50 discount to the Dubai/Oman benchmark. The move came as a surprise, as most analysts had expected a cut of around $8 per barrel. By going much further than expected, Saudi Arabia has made its crude far more attractive for Asian refiners.
Even so, the expert does not expect India to depend heavily on any one supplier. “India is unlikely to become overly reliant on any single supplier, instead continuing its strategy of diversifying imports between the Middle East, Russia, the US and other producers,” he said.
At the same time, he expects Saudi Arabia’s lower prices to help it increase its share in India’s oil imports over the coming months.
Russia may have to offer deeper discounts
Saudi Arabia’s aggressive pricing could also increase pressure on Russia, which remains India’s largest supplier of crude oil. “Saudi Arabia’s pricing strategy increases competitive pressure on Russian crude exports to Asia, and in particular to India, because refiners have become increasingly sensitive to price,” Maxwell said.
Russian oil has remained popular mainly because it has been offered at heavy discounts. However, Maxwell believes that advantage could become smaller if Saudi Arabia keeps offering cheaper oil while also providing shorter shipping routes and reliable long-term supplies. “If Saudi grades reduce that differential while offering shorter and more efficient shipping routes and reliable long-term supply, Russian exporters may need to look at providing further discounts to keep its market share,” he said.
Maxwell does not believe a full-scale price war is about to begin, but he expects negotiations between suppliers and Indian refiners to become tougher. “This does not necessarily mean a price war will happen, but it does increase the likelihood of more competitive pricing negotiations between suppliers and Indian refiners,” he said.
“If Saudi Arabia maintains lower official selling prices over several months while production continues to increase, Russian exporters may have little choice but to sacrifice some margins to remain competitive.”
Indian refiners are not rushing to buy
Even though prices have become more attractive, Indian refiners are not making quick purchases. India imported a record 4.93 million barrels of crude oil per day in June, and refiners have already secured enough supplies for the first half of August.
Supplies from Africa, Russia and Venezuela are also increasing, while OPEC+ continues to pump more oil. With enough crude available in the market, refiners believe there is no need to rush. Many are waiting to see whether prices fall even more before buying additional cargoes.
Fuel prices have started coming down
The fall in crude oil prices has already started showing up in fuel prices, although only partly. From July 1, private fuel retailer Nayara Energy reduced petrol prices by ₹5 per litre and diesel prices by ₹3 per litre. Oil marketing companies also cut the price of 19-kg commercial LPG cylinders by ₹183.50 from the same day.
However, state-run fuel retailers Indian Oil, BPCL and HPCL have not announced similar cuts yet, which means most consumers are still not getting the benefit.
Petroleum Minister Hardeep Singh Puri recently said that reducing retail fuel prices would become a “legitimate question” if global crude oil prices remain at current levels for a few more weeks. At the same time, he said it is too early to expect an immediate price cut.
One reason is that state-run oil companies are still recovering the losses they suffered when global crude prices were much higher. That means it could take some more time before lower crude prices fully translate into cheaper petrol and diesel for consumers.
Why oil prices are falling
Two major developments have pushed oil prices lower. The first is a sharp rise in global supply. OPEC+ has approved another increase in oil production for August. The group’s production target has now gone up to 35.83 million barrels per day, while Saudi Arabia’s own production quota has increased to 10.35 million barrels per day.
At the same time, the International Energy Agency (IEA) expects the world to face an oil surplus of around 3.84 million barrels a day in 2026. Global demand is expected to grow by only about 700,000 barrels a day, while supply is rising much faster as OPEC+ members compete to protect their market share.
The second reason is easing geopolitical tensions. The conflict between Israel and Iran has cooled, and the Strait of Hormuz has reopened. This has allowed Gulf countries to export oil normally again. Demand from Chinese refineries has also weakened. As a result, Brent crude has fallen to around $70-72 per barrel, after rising above $110 per barrel during the peak of the Hormuz crisis.
For now, the outlook appears favourable for India. Rising global oil supplies, Saudi Arabia’s aggressive price cuts and growing competition among exporters could help bring down the country’s crude import bill. However, whether consumers see cheaper petrol and diesel will depend on how long these lower prices last and how much of the benefit state-run oil companies decide to pass on.
