Home / Oil & Energy / Oil & Companies News / Dubai crude price structure under pressure as Indian refiners mull run cuts

Dubai crude price structure under pressure as Indian refiners mull run cuts

Indian refiners are unlikely to pick up much spot Middle Eastern crude cargoes over the June and July trading cycle as several state-run refineries mull cutting down their operation rates and reduce middle distillates production amid faltering domestic fuel demand, putting a downward pressure on the Dubai crude market structure.

Many Asian refineries have been consistently receiving crude term allocation cuts from Saudi Aramco and other major Middle Eastern suppliers over the past few quarters due to the producers’ strong commitment to production curbs, but with full contractual volumes expected from May onwards, Indian refiners may not need to seek many top-up barrels from the spot market, said trading managers and officials at two state-run Indian refiners.

Although major Indian refiners are yet to officially announce any plans to slash their run rates, it’s highly possible for many plants to adjust their linear programming, or LP, models and lower their crude throughput as consumer and industrial fuel demand is poised to turn sharply lower amid the country grappling with record COVID-19 cases, the refinery sources said.

Indian Oil Corp., or IOC, was running its refineries at slightly lower levels than normal, company officials said, amid rising cases in India. “Our refineries are running on an average 96%-98% as of now,” one official said.

State-run Indian companies typically pick up light sour Qatari and Abu Dhabi grades in the spot market every trading cycle, as well as additional Basrah Light and Heavy cargoes from trading companies or directly from Iraq’s State Oil Marketing Organization.

Reflecting the downbeat refinery crude runs, Indian refinery feedstock procurement managers and traders have been quiet so far in the June trading cycle with no Umm Lulu, Qatar Land, Basrah Light and Al Shaheen crude cargoes heard changing hands with any Indian counterparties in the spot Middle Eastern market, according to multiple Singapore-based sour crude traders.

Lackluster Indian demand has taken a toll on the broader Middle Eastern sour crude complex as a result, with the physical Dubai crude market structure tumbling to an eight-week low on April 22.

The spread between front-month Platts cash Dubai and same-month Dubai swap fell to 87 cents/b April 22, the lowest spread since 61 cents/b Feb. 26, S&P Global Platts data showed.

The sharp pull back in Dubai market structure could mean that major Middle East producers may have to lower their official selling prices in the next round, according to Singapore-based traders.

The Dubai market structure is understood to be a key component in major Middle East producers’ monthly OSP calculation.

India’s middle distillate demand, output

India’s crude oil and other refinery feedstock import volumes will largely hinge on the fate of the country’s consumer transportation and industrial fuel demand trend over the next few months, industry sources and market analysts said.

Indian refiners are broadly expected to maintain their gasoline production plan unchanged for the rest of April and perhaps into early May as healthy cracks in the Asian middle distillate market would likely encourage the fuel suppliers to capture the strong export margins, according to a fuel marketing source at Bharat Petroleum Corp. Ltd., or BPCL.

However, the sharp downturn in India’s driving activity and any subsequent consumer motor fuel demand destruction over the second and possibly into the third quarter could mean that gasoline yield must be cut, the source added.

Driving activity — a proxy for gasoline demand — in India’s capital New Delhi was recorded at 60% below baseline levels as of April 22, a sharp downtrend from February’s peak of 70% above baseline levels, Apple mobility data showed.

Meanwhile, some state-run Indian refineries may consider cutting back on jet fuel and diesel output as near-term aviation and industrial fuel demand will likely take a hit due to the suspension in key international flights to and from India, while major construction projects were reported to have been put on hold in an effort to avoid a large crowd work environment, plant operation sources at BPCL and IOC refineries with knowledge of the matter told Platts.

UAE recently announced the suspension of all inbound flights for national and international carriers coming from India. Canadian government also announced suspension of all incoming passenger flights from India and Pakistan for 30 days as cases of COVID-19 surge in both countries.

“India’s April oil demand is expected to drop by 225,000 b/d from March, and May demand is expected to see a further drop of 325,000 b/d over April,” JY Lim, oil markets adviser at Platts Analytics said.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping