India’s obvious displeasure with restrictions on output imposed by OPEC and its allies, and its aim to diversify crude oil suppliers, may run into the harsh realities of the global market.
The world’s third-biggest oil importer and consumer has told state-owned refiners to speed up the diversification of crude imports in order to cut dependence on its main source of supply, the Middle East, Reuters reported on Tuesday, citing two sources with knowledge of the plan.
India’s supply is dominated by members of the group known as OPEC+, which includes the long-standing producer group and allies such as Russia.
The OPEC+ decision to continue its output cuts of around 7 million barrels per day (bpd) into April was met with anger in India, which imports 84% of its crude needs, with more than 60% coming from the Middle East.
Buying crude from the Middle East has made sense for India, given its close proximity to the region, which cuts down on shipping time and costs and allows Indian refiners to be flexible in their purchases.
But with the output restrictions helping drive crude oil prices to a 14-month peak, India is worried that its recovery from the economic hit from the coronavirus pandemic may be hurt by high fuel prices.
Global benchmark Brent crude reached a high of $71.38 a barrel on March 8, the most since January 2020, although it has since eased to close at $67.52 on Tuesday.
Brent has been climbing steadily in recent months and the futures contract has gained 30% since the end of last year.
Already, the rising prices are starting to affect demand in India, especially since the reform of the fuel taxation and subsidy system means consumers are now more directly exposed to changes in crude prices.
India’s oil imports appear to have fallen sharply in February, with Refinitiv Oil Research estimating that 4.1 million barrels per day (bpd) were discharged in the month, a four-month low and down from 4.39 million bpd in January and 4.75 million bpd in December.
India’s biggest supplier in recent months has been Iraq, with Refinitiv shipping and port data pointing to imports of 900,000 bpd in February, in line with December’s 890,000 bpd.
However, imports from Saudi Arabia, the leading member of the OPEC+ group, have slumped, with just 590,000 bpd arriving in February, down from 730,000 bpd in January and 910,000 bpd in December.
India has made up some of the losses from Saudi Arabia from Russia, with February imports pegged at 180,000 bpd, up from just 60,000 bpd in January and 130,000 bpd in December.
India is also buying more from the United States, with February arrivals estimated at 590,000 bpd, up from 480,000 bpd in January and 260,000 bpd in December.
IRAN, VENEZUELA
However, if India is to meaningfully diversify away from the Middle East, it will run into the problem of sourcing the medium to heavy grades of crude preferred by many of its refineries.
There is plenty of crude available from west African exporters such as Nigeria and Angola, but this tends to be lighter grades, which yield more gasoline and less diesel.
There is an opportunity to buy crude from emerging exporter Guyana, with the South American nation ramping up output of its medium to light crude, but it’s unlikely India could obtain sufficient volumes to make much of an impact.
In reality, the best sources of alternative supplies for India are both OPEC producers, but both outside the current output restrictions, and both subject to political considerations.
The two exporters in question are Iran and Venezuela, which are both subject to U.S. sanctions on their crude exports, measures which India has so far observed.
India hasn’t officially imported any Iranian crude in more than a year, and it last imported cargoes from Venezuela in November.
Source: Reuters
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