India’s crude buying moves into top gear as refiners maximize runs

Indian refiners are accelerating crude purchases as they lift run rates closer to 100% on expectations of a sustained upward trend in products demand, while keeping a close eye on the omicron coronavirus variant.

The threat from the new virus variant has not been severe enough to dent the country’s oil demand recovery, trade sources and analysts said, although it has subdued the sentiment to some extent over the past weeks.

India’s refinery runs are expected to rise by 370,000 b/d to 5.2 million b/d in 2022 on the back of strong domestic demand as economic activity gains steam and export demand rises, according to S&P Global Platts analytics.

“But with the emergence of new Omicron variant, there is a risk of downward adjustment to our outlook,” said Lim Jit Yang, advisor for oil markets at Platts Analytics.

“If the new variant spreads fast, governments in the region will tighten measures to contain the spread and the impact will most likely be felt in the first half of 2022. However, any lockdowns are likely to be localized and more targeted, and any impact on demand is likely to be relatively more modest than last year,” he said.

State, private refiners boost runs

The average run for all categories of refineries in India rose to 99% in October, from 89% in September, as domestic fuel demand rebounded on easing coronavirus-led restrictions, the latest survey of the country’s oil ministry showed. October’s run rate was also higher compared with the 87% run rate in the same period a year ago.

The country’s state-run refineries recorded a 96.5% run rate in October, compared with 89% a year ago, and 83% in September. Indian Oil Corp. recorded an average of 93% combined run for all its nine standalone refineries in October, compared with 96% a year ago, and 82% in September. The lower run rate was mainly due to maintenance works at some of its refineries.

Private refineries recorded an average of 100% runs in October, compared with 81% in the year ago period and 95% in September.

“Indian demand is picking up. Gasoline demand is good, but diesel is in backwardation, mostly due to some omicron cases,” said an Indian refinery source. “Refinery runs will still go to 100%. We have seen times with negative margins but now margins are positive. So, we will cash in.”

Crude prices have been steadily rising over the past few months, with little respite from the recent decision by the US and other countries to release stocks of reserve oil.

However, the sentiment in the Asian spot market has weakened over the past few weeks, reflecting an easing sour crude complex, sources said.

The Dubai cash/futures spread averaged $1.81/b in the month through Dec. 15, compared with an average of $3.38/b in November, Platts data showed.

The spot differentials for Middle Eastern grades are expected to ease compared with November, when trading activity kicks off in December. A weaker outlook in the West continues to push arbitrage crude into Asia, with Indian refiners eyeing cheaper barrels from regions, such as Europe and West Africa, sources said.

The Brent/Dubai EFS averaged $3.03/b in the month through Dec. 15, compared with $4.54/b in November, Platts data showed. Refiners have increasingly sought crude from the West amid a steadily narrowing Brent/Dubai spread in December, traders said.

Crude deals galore

India’s October oil products demand rose 5.2% year on year and 12.3% month on month to 17.82 million mt, or 4.5 million b/d, according data from the Petroleum Planning and Analysis Cell.

The omicron variant is unlikely to hurt India’s oil products demand, some traders said, prompting refiners to bolster their crude buying appetite.

IOC bought around 6 million barrels of West African and Iraqi crude for arrival in February in recent tenders, according to sources. Mangalore Refinery and Petrochemicals Ltd. also bought one million barrels of February-arrival Angolan Pazflor crude.

“All refineries have increased throughput. Seeing demand and crude availability, they jacked up runs,” a trader with an Indian refiner said.

Light crude grades have been the preferred option for local refiners, due to robust demand for products, such as naphtha, sources said.

The sole concern for refiners was jet fuel consumption, which has weakened due to omicron-induced travel restrictions.

“The aviation turbine fuel market will get hit,” a trader said.

India has pushed back the resumption of normal international flights to end-January from mid-December.
Source:  Platts