Significant cut unlikely in Gulf oil supplies to India

West Asian crude oil exporters are unlikely to significantly cut supplies to India next year to satisfy growing European demand, executives at Indian state-run refiners said as they prepared to negotiate annual purchase deals with the Gulf suppliers.

State-run refiners source about 60% of their crude oil requirement through term deals, renewed annually, mainly with West Asian national oil companies. The balance is sourced from the spot market, and this year cheap Russian oil has gained a big share in Indian spot purchases. For term deals that begin in January, negotiations start in September-October while for contracts starting in April, talks begin in December-January. These contracts with West Asian producers mostly have both ‘firm’ and ‘optional’ volumes.

“Our term deals are unlikely to be hit. Gulf suppliers may not offer optional volume this time,” said an executive at a state-run refiner.

Dependency on Russian Oil may Go Up

“But I don’t think they are going to reduce the firm quantity in any significant way. They might want to meet the new European demand but not at the cost of souring a decades-old relationship with India, which is the world’s third-largest consumer and importer of crude,” added the executive, who did not wish to be identified

Europe has pledged to dump by December most of the Russian oil it consumes and is seeking replacement barrels from West Asian and other sources. “The Gulf’s production is finite, and some rerouting of supplies must happen to accommodate the new demand,” said another refinery executive. “If producers offer term deals to Europeans, they must offer less to existing customers or in the spot market.”

The increased European demand could push up Dubai-Oman, the West Asian price benchmark, and the premium on that for Asian customers, said a third executive.

Higher prices and lower availability of crude oil from the Gulf could further drive Indian refiners into the arms of Russian oil suppliers, he said.

Russia already has nearly 20% share in India’s crude imports, up from 1% in 2021. But increased Indian dependence may adversely affect discounts available on Russian oil, an executive cited earlier warned. “Discounts have already halved to $5-6 per barrel on a delivered basis and may further tighten,” he said.

But some discounts would remain, said the executive.

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