There was a match in global oil, which was largely left out of the spotlight, as the world is focusing on the pandemic and its effect on demand. The match attracted attention recently, as the players gave up any claim not to play. Earlier this week, Saudi Arabia said has raised official selling prices for its oil to Asian buyers. In response, India has ordered its state-owned refineries to cut its Saudi oil purchases. The game is on.
OPEC’s largest producer announced price hikes for Asian buyers just days after OPEC + agreed to start adding barrels to their daily production, reducing a production limit that has prompted India to protest repeatedly. against what he calls an artificial way to keep oil prices high. Next month, Asian refineries and traders will have to pay $ 1.80 above the Oman / Dubai average for Saudi crude oil shipments.
From one perspective, the Saudi movement could be an attempt to keep revenues in the largest market stable, even if prices fall as a result of higher production, including from exempt OPEC members Libya and Iran, both increasing production.
Otherwise, this move could be a warning for India to think twice before diversifying into other suppliers, as price is not the only consideration when it comes to oil imports, Karunjit Singh of Indian Express wrote in a recent analysis on this topic, citing energy experts.
“This incident shows that it is not just the price of crude oil, but conditions such as transportation and the flexibility of contracts that producers can push if importers try to diversify their supply,” an Indian analyst was quoted as saying by Indian Express.
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And yet, in response to rising Saudi prices, New Delhi has told refineries to reduce their orders for Saudi oil for May, which they have he did it promptly. Indian refiners will now buy 36 percent less crude oil from Saudi Arabia next month than previously planned. This would amount to about 9.5 million barrels in total for four large state-owned refineries: Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp. and Mangalore Refinery and Petrochemicals.
This compares with 10.8 million barrels planned to be bought before the price increase, but also compares with an average monthly import rate of 14.8 million barrels from Saudi Arabia for the four refineries. The ball appears to have landed on Saudi soil.
The kingdom is moving closer to India, which keeps the cost of transporting crude there. He is also flexible in terms of production, as he has proved himself countless times when he feels threatened by a fellow producer, most recently – last year – Russia. The large size of its production capacity is also an advantage over smaller producers.
On the other hand, India – and the other major Asian oil importer, China – has a choice of bedding and it is a growing bedding. Last year, for example, India’s largest oil supplier was Iraq, but in February this year, it was replaced by the United States. The subcontinent is also importing crude from Central Asian, African and Latin American countries. This month, and India bought its first shipments of Norwegian crude oil, from the Johan Sverdrup field, to a total of 4 million barrels, two of which will be delivered in May and two in June.
India is diversifying from oil in the Middle East – read Saudi Arabia – and has a good chance of scoring a big point against its opponent in the match, albeit partly by mistake: an increase in new Covid-19 infections on the subcontinent this week. pressed prices. This rise could not have come at a worse time for Saudi Arabia: some analysts saw the price movement in Saudi Asia as a signal of its confidence in recovering oil demand from Asia. Indeed, demand has rebounded in both China and India – the world’s first and third largest oil importers – but any news of rising infections is enough to reverse the positive effect of this recovery on oil prices.
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India imports most of the oil it uses. At 80%, the share of imports in its consumption is uncomfortably high. However, of this total, up to 60% comes from suppliers in the Middle East – again, an uncomfortably high degree of dependence on a single group of united producers.
“We asked companies to aggressively seek diversification. We cannot be held hostage to the arbitrary decision of Middle Eastern producers. When they wanted to stabilize the market, I stood by them, “said a New Delhi government source. Reuters in early March, noting that India did not cancel any OPEC charges last year, despite the destruction of demand.
The aim shows how the divergence between the interests of oil buyers and those of their suppliers has deepened against the background of the pandemic. This is not far from the first time that OPEC, led by Saudi Arabia, is capping production to support prices, but India has not been so vocal in its opposition to such moves. Now, however, with the extra-fragile economic recovery and the pandemic far from over, it seems that price sensitivity has increased.
The good news for buyers like India is that supply is growing and growing: Guyana has joined the exporters’ club, and India already has plans to start buying oil from newcomers. The bad news is that diversification will cost more, which, according to the government, will ultimately be worth it.
The good news for Saudi Arabia is that its production prices are still lower than most other suppliers. The bad news is that he may have used the price weapon prematurely, confident that India has few other import options. Therefore, at some point, the Kingdom may have to choose whether to prefer a larger market share to the world’s third largest crude oil importer or whether to bet on higher prices and lower sales.
By Irina Slav for Oilprice.com
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