Page 5 - Policy Economic Report - September 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

The HSBC Flash India Composite Output Index, which measures the combined performance of India’s
manufacturing and service sectors, fell to 61.9 in September from 63.2 in August, marking a modest
slowdown but still indicating a sharp rate of expansion. This was the second-best reading in over two
years. Growth in factory output outpaced that of services, although the pace of increase moderated across
both sectors.

On the external front, India’s foreign exchange reserves rose by USD 4.698 billion to USD 702.966 billion
in the week ending September 12, according to the Reserve Bank of India’s latest Weekly Statistical
Supplement. This marks the third consecutive weekly increase, with the reserves crossing the much-
awaited USD 700 billion mark. According to RBI Governor, India’s foreign exchange holdings are now
sufficient to cover 11 months of imports.

As far as oil and gas industry is concerned, the oil market is currently being influenced by a variety of
competing factors. On one hand, the risk of supply disruptions due to newly imposed sanctions on Russia
and Iran looms large. On the other, these concerns are tempered by increased supply from OPEC+ and
the possibility of growing global oil inventories. Meanwhile, China continues to accumulate crude oil
reserves, contributing to a slight backwardation in Brent crude futures.

The tightened sanctions on Iran and Russia have had only a limited effect on global supply and trade flows,
despite a downward trend in exports from both countries in recent months. However, the European
Union's impending ban—effective from the beginning of 2026—on imports of refined products derived
from Russian crude could potentially reduce output and significantly alter trade routes in the near future.

Premiums of light sweet crude over medium sour grades narrowed in Asia and on the US Gulf Coast
(USGC), in line with a sharp decline in the Brent–Dubai spread, which moved into a deep discount. This
reflected a stronger sour crude market amid concerns over supply disruptions to medium sour grades due
to sanctions and geopolitical developments. However, though sweet–sour crude differentials in Europe
widened slightly, they remained relatively low.

Crude spot prices averaged lower in August, pressured mainly by heavy selling activity in the oil futures
markets, which weighed on sentiment. Weaker refining margins in Europe and Asia added to the
downward pressure. A decline in sour crude benchmarks in the East of Suez market was limited compared
with light sweet crudes in the Atlantic Basin, as medium sour grades continued to benefit from strong
demand from Asia-Pacific refiners. Spot prices also maintained at a firm premium against futures in
August, reflecting supportive short-term supply/demand fundamentals, despite seasonal demand
softening.

Natural gas spot prices at the US Henry Hub benchmark averaged $2.91 per million British thermal units
(MMBtu) in August 2025. Henry Hub's natural gas prices fell in August by 8.8%, m-o-m. They were under
pressure from lower seasonal demand amid mild summer temperatures, which contributed to higher
storage levels. According to data from the US Energy Information Administration (EIA), average weekly
natural gas storage increased by 3.9%, m-o-m, in August. Strong LNG export volumes provided some
support to prices in the period, which were up by 46.2%, y-o-y.

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