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India hopes early return of Iranian, Venezuelan crude to soften price blow


IOC, other refiners pick up spot Russian crudes

Russian imports 'minuscule' in import basket: Minister

High prices starting to take toll on domestic fuel demand

  • Author
  • Ratnajyoti Dutta    Sambit Mohanty
  • Editor
  • Debiprasad Nayak
  • Commodity
  • Oil
  • Tags
  • Asia Pacific United States
  • Topic
  • Iran Sanctions US Sanctions on Venezuela's PDVSA War in Ukraine

India is feeling the pinch from sky-high crude prices, but refiners are resting their hopes for an early return of Venezuelan and Iranian oil to ease the situation instead of aggressively turning to discounted Russian crudes, which many refiners are not used to processing in a larger scale.

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Although some refiners are picking up spot Russian cargoes, analysts said the volumes are not big enough to displace inflows from traditional suppliers, such as the Middle East, US, Latin America and Africa.

"We require a total of five million b/d of crude. About 60% comes from the Gulf. We imported from Russia just 0.419 million mt in the April-December period of the current fiscal year 2021-22 (April-March). That is just 0.2% of the total requirement. Even if we scaled up this considerably, it would still be a drop, literally, in a larger bucket," Hardeep Singh Puri, India's petroleum minister, told the parliament recently.

"As far as oil imports are concerned from Russia, contrary to what's being played up in media, it is minuscule," he added.

But Puri acknowledged that Indian buyers had contracted the equivalent of about three days' worth of the nation's oil needs from Russia, which would be supplied over the next three to four months.

"Some state refiners are keeping an eye on Russian crude offers and are picking up some Russian barrels because prices are attractive," said one industry source.

In a recent tender, Indian Oil Corp. was heard to have taken three million barrels of Urals for loading in May. This follows the refiner's earlier purchase of three million barrels of Urals crude for delivery in the same month.

"At present, oil public sector undertakings neither have any contract nor there is any such proposal under consideration from Russia or from any other country for the purchase of crude oil in Indian rupees," Rameswar Teli, India's junior oil minister, told the parliament.

For many Indian refiners, buying a lot of discounted Russian cargoes may not be a wise thing to do. Most refiners have their fuel production plans, as well as refinery linear programming models to consider before drastically altering their crude slates.

Iran, Venezuela

"It is our hope and expectation that oil, not only from Venezuela, but other countries under sanctions, will become available. We will all use collectively, our margin of persuasion to request the international community to make more oil available, including from Venezuela," Puri said.

"Apart from oil which will become available by countries who, hitherto, were not supplying on account of sanctions, existing OPEC plus will increase their production," he added.

OPEC and its allies approved another modest oil production increase March 31, saying it saw no need to respond to oil disruptions from the Ukraine war being waged by key member Russia. The OPEC+ agreement called on the 23-country producer alliance to boost output by 432,000 b/d in May.

That is a slight increase from the previous monthly increases of 400,000 b/d, but short of what analysts at S&P Global Commodity Insights forecast for Russian crude shut-ins of 2.8 million b/d from late April through to the end of 2022.

Indian government officials added that the incremental volumes from Russia would not affect purchases from countries such as the US, which was showing a rising trend.

In the financial year 2020-21 (April-March), India imported 14 million mt of crude oil from the US, representing more than 7% of the country's requirements as against less than 1% from Russia, government officials said.

"Going by the current trend, 14 million mt would go up to 16.8 million mt, or $10 billion worth of crude oil imports from the US this year," Puri added.

Indian finance minister Nirmala Sitharaman also told the parliament that the ongoing Russia-Ukraine conflict had posed fresh challenges, including higher oil prices, as well as disruptions to supply chains.

Demand destruction

The country's demand for oil products rose 5.4% year on year to 17.57 million mt, or 4.9 million b/d in February, the latest provisional data from the Petroleum Planning and Analysis Cell showed, reflecting a recovery in industrial and consumer demand after the third wave of COVID-19. But it was down 0.2% month on month as a fall out of higher global crude prices. Analysts said the demand destruction was starting to kick in.

"Persistent high oil prices will likely intensify inflationary pressure and dampen fragile demand recovery in India, particularly as retail fuel prices have been raised almost daily since March 22 soon after the state elections," Lim Jit Yang, advisor for Asia-Pacific oil markets at S&P Global.

Before the recent hikes, retail fuel prices had been almost the same for four months since November 2021 after the government announced an excise cut for petrol and diesel prices. Crude oil prices have risen by almost 60%-70% since then, pressurizing margins for oil marketing companies and more hikes on retail prices are likely to follow, which will increasingly become a headwind for demand recovery, he added.