India being one of the largest receivers of crude oil or petroleum, recently the Ministry of External Affairs has requested oil producing nations to relieve the production cut that were set last year due to the drop in the consumption around the world. Last month when the government asked oil refineries to increase diversification and reduce dependence on Middle East, the Organization of the Petroleum Exporting Countries (OPEC) and OPEC plus countries have announced a slight reduce in last week. The spokesperson claims that the elevated price of crude oil reduced the utilization related recovery of several countries which also includes India.
Import Cuts and Reason
After receiving the product cuts in April from the Organization of Oil Exporting Countries and Media Producers (OPEC+), Indian refineries planned to cut imports from the Kingdom from about a quarter in May dropping them to 10.8 million barrels from 14.7-14.8 million barrels. Oil secretary Tarun Kapoor said that India is asking state refineries to discuss with the oil producers to get better deals. He also said, “India is a big market so sellers have to be mindful of our country’s demand as well to keep the long-term relationship intact.” According to Oil Minister Dharmendra Pradhan increase in oil price is a threat to the Indian economy because of this pandemic. India’s fuel import bill has raised and fuel prices are magnified by government taxes which were imposed last year. The International Energy Agency reported that India’s utilization to double and its oil import bill to triple from 2019 to more than $250 billion by 2040. An oil ministry official said that the OPEC+ has created doubt and it will be difficult for refiners. It also creates a prospect for companies in the Africa, Americas, Russia and other places to fill the gap.
Saudi Arabia has cut April oil supplies for some Asian refiners but has maintained monthly volumes for Indian refiners. The Kingdom has rejected the demand for extra supplies from Indian companies. In February the United States has emerged as the second largest supplier to India after Iraq. Saudi Arabia which has been one of India’s top most suppliers has slipped to number four, for the first time since January 2006.
India’s demand for oil has increased 25% in the past seven years, and the country has suppressed Japan as the world’s third largest oil importer and consumer. The country has restricted its dependence on the Middle East from 64% imports in 2016 to 60% in 2019. HPCL-Mittal Energy Ltd buyers the country’s first cargo from Guyana this month, and Mangalore Refinery and Petrochemicals Ltd just imported Brazilian Tupi crude for the first time. After the break with Saudi Arabia began, Dharmendra Pradhan did meetings with the state minister of the United Arab Emirates and chief executive Sultan Ahmed Al Jaber of Abu Dhabi National Oil Co (ADNOC) and Jennifer Granholm U.S. energy secretary to strengthen energy partnership. Recently, Pradhan said that the country is looking at signing a long term oil supply deal with Guyana, and also exploring options to raise imports from Russia. The Indian government expects Iranian sanctions to relieve in three to four months, potentially offering India a cheaper alternative to Saudi oil.
Most analysts expect the Middle East to remain India’s primary oil supplier, mainly because of lower shipping costs. Indian oil ministry is working with refiners jointly to negotiate terms with suppliers. “Buyers have alternatives in today’s market and these alternatives are going to multiply going forward. There are so many companies in India that do buying at their own level, so these companies coming together also becomes quite a big bloc,” Kapoor said. Saudi Arabia and OPEC+ agreed on Thursday after discussing with U.S. officials to relieve oil curbs in the beginning of May. Saudi energy minister Prince Abdulaziz bin Salman said that “the production cuts had put state oil company Aramco in some difficulty with some of its partners.”
This curb and negotiation about the ease on and offering a cheaper oil than Saudi Arabia will help Indian economy admits this pandemic.
- Hindustan Times
- The Hindu
- Financial Express
- Economic Times