Refiners prune Saudi oil imports in hedge against fall in demand – Times of India

NEW DELHI: Indian refiners are reducing crude shipments under term contracts, including from OPEC lynchpin Saudi Arabia, and looking at raising spot purchase to better manage expected contraction in demand in the coming months as several units head for maintenance shutdowns and a resurgence in Covid-19 cases prompts local lockdowns.
Sources said May shipment orders for Saudi crude from state-run Indian Oil Corporation and three other refiners stood at 65% of the monthly average of about 15 million barrels.
The reduction comes in the backdrop of Saudi Aramco on Sunday raising the May ‘official selling price’, or OSP, for Asian buyers and souring of bilateral ties over Riyadh ignoring India’s persistent calls for reversing production cut that boosted oil prices and pushed pump prices in India to record highs.
Interestingly, the supposed “retaliation” by New Delhi comes amid Saudi Aramco’s ongoing partnership talks with a conglomerate of state-run refiners for a proposed $40-billion refinery in Maharashtra and a stake deal in Reliance Industries Ltd’s O2C (oil-to-chemicals) venture.
Amid souring of ties with one of India’s key suppliers, the government recently asked state-run refiners to reduce dependence on Saudi oil and diversify sources. The refiners are using this opportunity to reduce quantities under term, or firm, contracts as many of them are going in for maintenance shutdown. The refiners are also hedging on a good monsoon, which will reduce demand from the farm sector.
A term contract binds refiners, though they can defer shipments in case of a sudden fall in demand. But they have to meet the annual offtake commitment. Spot purchase offers flexibility in managing demand and also opens windows for procuring distress cargos at discounts.
The share of Opec countries in India’s oil imports declined to 74% between April 2020 and February 2021 from nearly 80% in the previous corresponding period. Though Iraq still remains the top supplier, US spot shipments have increased substantially in recent times.