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Indian state refiners ponder joint crude purchases as surging prices bite

Highlights

IOC, BPCL, HPCL are India's leading state-run refiners

Pricing such long term deals key challenge: Platts Analytics

HPCL crude runs hit 100 percent capacity as demand rises

Indian state refiners, bitten by surging crude prices, are working on a plan to jointly negotiate term crude import deals with the aim that pledging to buy larger volumes could potentially help to get relatively lower prices, Hindustan Petroleum Corp. chairman Mukesh Kumar Surana said on the sidelines of the India Energy Forum by CERAWeek.

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The comments from one of the country's leading state refiners come at a time when the country, which imports more than 80% of its crude oil needs, has seen its oil import bill rising almost three times in some quarters of this year, compared with the same year-ago period.

"We are exploring the route of joint term deals with our suppliers. But this is still at the discussion stage," Surana told S&P Global Platts.

Lim Jit Yang, advisor for Asia-Pacific oil markets at S&P Global Platts Analytics, said the biggest challenge on this initiative, if it goes ahead, would be how to finalize the pricing of such large term deals.

"High oil prices will undermine global economic recovery, and the idea of long-term supply contracts that provide predictable and stable pricing can be a win-win situation for both consuming and producing countries, he said.

"However, pricing such deals may be complicated by the rapidly changing energy landscape as the world embraces energy transition," he added.

Surana said he expects global crude prices to hover in the range of $80/b-$90/b until December, while Indian refiners would be comfortable when prices are in the range of $60/b-$70/b.

India's petroleum minister Hardeep Singh Puri told the India Energy Forum earlier that India's crude import bill, which accounts for about 20% of the country's overall import bill, had risen to $24 billion in the quarter ended June from $8.8 billion in the same quarter a year earlier.

Demand destruction

"Crude prices above $90/b can cause demand destruction in consuming countries like ours," Surana said.

Comments from Surana echoed a similar sentiment by the country's petroleum minister who told the India Energy Forum earlier that surging oil prices could potentially create hurdles for a post-pandemic economic recovery, and urged the world's leading producers to take steps to potentially rectify the current supply and demand imbalances.

But Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman told the forum that OPEC and its allies do not see any crude oil shortages in the market. Dated Brent prices have more than doubled in the last year, with S&P Global Platts assessing the benchmark at $83.70/b on Oct. 21.

"We expect moderation in crude prices from January onwards. Even dwindling US crude reserves have a consequential impact on high global crude prices," he said.

Surana said India's demand for most oil products had already attained the pre-pandemic level, riding high on robust demand for transportation fuels, gasoline and diesel.

"Higher demand levels for transportation fuels like diesel and gasoline will be sustainable from November onwards in absence of any fresh wave of COVID-19," Surana said.

India's demand for oil products in September rose 5.2% year on year to 15.92 million mt, or 4.2 million b/d, provisional data from the Petroleum Planning and Analysis Cell showed.

Run rates bouncing back

Surana said HPCL's average runs at its three refineries at Mumbai, Vizag and Bhatinda were now at 100%, mainly because of above-average runs at Vizag refinery, although the Mumbai refinery was still operating at around 85% of capacity.

He said HPCL refineries would continue to look for a mix of high and low sulfur crude grades for processing, as demand for both gasoline and diesel were now showing an upward trend.

Delegates at the India Energy Forum said the country's refiners have been increasingly looking at enhancing their petrochemicals portfolios substantially. This would serve the twin objectives of meeting growing domestic demand, while providing a cushion for the future in the event demand for transport fuels slows due to the transition to cleaner forms of energy.

"Investment decision in the Indian refining segment will depend on changing landscape for fuel demand, life cycle operation of a refinery and the speed of energy transition. Investment decisions will also depend on the plan to de-risk the refining business into petrochemicals," Surana told the India Energy Forum.