By R. Sasankan

The petroleum industry is in a state of ferment. As the geopolitical crisis escalates and the world economy starts to slow down, the demand-supply equation in crude oil has been thrown out of kilter.

 Crude oil prices have started to tumble. On January 9, WTI crude price nudged up to $ 59.37 per barrel after dipping to a low of $ 57.32 on January 3. Brent crude moved in tandem: inching up to $ 63.58 per barrel from $ 60.75 on January 3. In 2025, oil prices have fallen by 20% -- and the grim forecast is that the slide will continue.

And we are not even considering the fallout of the sudden regime change in Venezuela when American troops captured President Nicolas Maduro from his home in Caracas and hauled him off to stand trial in the US on felony charges ranging from narco-terrorism to possession of arms and human rights abuse in his country. But the bigger conundrum for the market is this: President Trump has asked American oil companies to go into oil rich-Venezuela, collectively invest about $ 100 billion in establishing the requisite infrastructure to pump out oil.

In the immediate term, the US intends to grab 50 million barrels of Venezuelan oil that it had barricaded during the tense standoff which could yield $ 2.8 billion in sales. In 2024, Venezuela claimed it had 300 billion barrels of proven crude oil reserves, the highest in the world. No one knows how crude oil prices will behave once the Venezuelan wells start pumping oil. But Trump has said he expects to bring down crude oil prices in the US to below $ 50 - a prospect that will wreck the returns and the capital efficiencies of the oil majors and send huge ripples through the world oil market.

Economists and market analysts reckon that falling crude prices are driven by a combination of oversupply (high production from US/OPEC+), weakening global demand resulting from slower growth, especially in China/Europe, and a strong US dollar, with geopolitical issues providing only temporary support against a backdrop of ample inventories and increasing non-OPEC supply.

Even if we leave out the anticipated rumpus arising from the Venezuelan kerfuffle, things do not look too good.

The U.S Energy Information Administration (EIA) expects global oil inventories to continue to rise through 2026, putting downward pressure on oil prices in the coming months. "We forecast the Brent crude oil price will fall to an average of $55 per barrel in the first quarter of 2026 (1Q26) and remain near that price for the rest of next year. Although we expect crude oil prices to continue to fall in the coming months, we assess that both the OPEC+ production policy and China's continued inventory builds will limit price declines."

S&P Global Commodity Insights says India's refined crude demand will peak later than in other major economies, positioning the country as a key driver of global oil consumption. While alternative fuels are gradually reshaping the energy landscape, fossil fuel usage is expected to remain significant in the foreseeable future. The firm forecasts that India's refined product demand will reach 5.7 million barrels per day (b/d) by 2026.

I have tried to provide the context, circumstance and the dire forecasts from international agencies to illustrate the challenges that the people who manage the affairs of India's mammoth petroleum industry will have to navigate in the turbulent times that lie ahead amid prospects of a global glut in crude oil and falling demand. The glut isn't there yet but I feel that we are heading inexorably in that direction.

In the past, I have criticised through this column India's irrational strategy of sourcing crude from every conceivable oil producer in the world. Petroleum minister Hardeep Singh Puri recently acknowledged that India is now sourcing crude oil from 40 countries with Argentina joining as the latest supplier. India's major suppliers include the United States, Russia, Saudi Arabia, the United Arab Emirates, and Iraq.

I have been speaking with some oil experts to understand how best India can derive maximum benefits from the fall in crude prices. India imports close to 89 per cent of its crude requirement as domestic production shows no signs of picking up. In view of its rising import dependency, India needs to draw up an innovative strategy to minimise its foreign exchange outgo.

 The first priority should be to review the strategy of spreading out its crude supply sources. Diversification is a virtue when there are shortages in the crude oil market; not when the prospect of a glut looms large. We need to pare down the number of crude sources to possibly a dozen. The logic is simple: Bigger long-term contracts yield better prices.

India still remains a small player in the global oil trade with a share of under 5% of global production and under 8% of oil traded across borders as crude or product. China imports about 2.8 times the amount that India imports followed by the US (about 1.7 times). The hope that Indian demand will rise rapidly has not really materialized as Indian prices of primary and secondary energy have consistently been among the costliest in the world (relative to the capacity to pay). Hence, India's per capita energy consumption has remained below a third of the global average since 1947.

In any event, there is absolutely no logic in having multiple suppliers without a clear strategy behind it. The experts say that India could source about 40% of its requirement from two or three sources in the Middle East; about 20% from two or three sources in Africa, and about 20% from two or three sources in Latin America/ Caribbean. The balance 20% should either come from Russia or from spot market play. This is the sort of wagon wheel for that will work best for India. The question is whether we have the gumption to narrow down our sources of crude oil?

In the emerging situation, oil producers may not be averse to dangling attractive price and other baits to a big importer like India. If the import quantity is large, the price offered will be enticing. This need not be seen as a price discount as in the case of Russian crude. A sophisticated negotiating style in the changed market situation will benefit both parties. India can tap major producers like Saudi Arabia, Iraq and the UAE in the Middle East. If the US sanctions against it are lifted, Iran can also emerge as a major source of crude supply. In the current situation, the diversification strategy will not yield the sort of advantages that we once were able to extract from it.