As US sanctions kick in, Indian refiners brace for costly crude
With US sanctions on Iran and Venezuela coming into effect on 2 May and Saudi Arabia restraining crude oil output, Indian refiners have started looking for sources of new crude oil supply to feed their refineries with heavy sweet crude, in addition to importing from Iraq.
Refiners prefer the heavy sweet crude supplied by Iran and Venezuela, which helps them produce low-sulphur fuel oil ahead of new shipping emissions norms that kick in January 2020.
In 2018-19, India imported close to 10% of its domestic oil requirement from Iran. Though refiners said Iran offered commercially attractive oil import terms to India, including a 60-day credit period and discounts on oil and insurance, it will not have a major impact on revenue, since for India, it is only 10% of its total oil import.
However, Despite US sanctions on Iran, the country’s crude oil supply to India increased 6.24% to 24 million tonnes (MT) in 2018-19, as India managed to import a sizeable volume largely due to sanction waivers provided by the US.
Imports from sanction-hit Venezuela dropped 5.56% to 17.32 MT last fiscal year, against 18.34 MT imported in the previous year.
Earlier in 2012, sanctions imposed on Tehran by the Obama administration had forced India to reduce its Iranian oil imports by half.
“We have put in place alternatives to replace oil imports from Iran and Venezuela. It was only imperative to look for other options,” according to a senior executive of an oil marketing company, who spoke on the condition of anonymity.
India imports over 80% of its oil needs. Iran was also the third-largest supplier of crude oil to India after Saudi Arabia and Iraq. The cost of oil import went up from $87.4 billion in 2017-18 to $107 billion in 2018-19 as average annual crude oil price went up from $57.85 per barrel to $70.86 per barrel.
Last fiscal year, Iraq maintained its position as the largest crude oil supplier to India in 2018-19, supplying more than 46.61 MT of crude oil, or a 2% increase in the previous fiscal year, according to data from the Directorate General of Commercial Intelligence and Statistics (DGCIS).
Crude oil supply by Saudi Arabia, leader of the Organization of Petroleum Exporting Countries (OPEC), increased 12% to 40.33 MT last fiscal year. Currently, India’s major suppliers are Saudi Arabia and Iraq.
Thanks to the sanctions, oil exports from the US to India shot up 328% to 6 MT in 2018-19, from 1.4 MT in 2017-18, pushing the US to the ninth position among the top 10 oil exporters to India. US was ranked 18th in 2017-18.
“Availability of crude is not an issue. There are many suppliers in the market. However, for Indian refiners, distance is an important factor as this adds to the freight cost. If an available crude trades at a discount to Brent crude with a difference of $3-4 a barrel, we can overcome the freight cost, making the crude an attractive option,” according to an official from an oil marketing company.
For oil marketing companies (OMCs), 60-70% of crude oil supply is term contract since it ensures a steady supply. Around 30-40% of the crude requirement is imported on a spot basis.
Source: Live Mint