NEW DELHI: India’s crude oil imports from Saudi Arabia may pick up modesty after the kingdom cut the official selling price of its key export grade for February, but the demand for discounted Russian Urals is still seen surpassing that for the oil from Saudi Aramco.
Analysts feel any lartge additional buying of Saudi crude by India is unlikely as Iraqi barrels too would come slightly more cost-competitive than the Saudi variety.
The recent Saudi price cuts have reduced the formula price of Arab Light from a $3.50 per barrel premium to Oman/Dubai to $1.50 per barrel, as per analysts. “Delivered into India, that is still $6-7 per barrel more expensive than Urals,” Viktor Katona, lead crude analyst at Kpler said.
Most Saudi cargoes to India are shipped via very large crude carrier (VLCC) resulting in $1 per barrel as the shipping cost and the final price of $2.50 per barrel above the Dubai grade.
“Considering Arab Heavy’s February formula price is -$0.30/bbl to Oman/Dubai, any Saudi crude in February would be more expensive than the Dubai contract,” Katona said.
The price of Saudi crude is determined on the basis of the monthly average of Oman/Dubai futures. The official selling price published by Saudi Aramco is an additional premium or discount to that monthly average.
Analysts also see Asian OSPs of Saudi Aramco rebounding into March, making it less profitable to buy Saudi crude by Indian refiners.
“India’s imports of Russian crude have recently been impacted by payment issues for Sokol crude, but as long as Urals remain attractively priced, we could expect healthy demand from the Indian refiners,” said Serena Huang, analyst at Vortexa.
As per S&P Global Commodity Insights, the price of Russian Urals landed into India is at a discount of close to $4 per barrel to Brent. For the Saudi Arab Light, February lifting will be priced at a premium of $1.5 per barrel to Dubai/Oman owing to the latest cut by Aramco, Pulkit Agarwal, Head of India Content at S&P Commodity Insights said.
However, escalating tensions at the Red Sea will remain a monitorable even if crude oil imports seem immune to the attacks presently as any flare-up in the region can prompt Indian refiners to opt for safer purchases from the Middle East.
The country’s crude import from Russia had fallen to 11-month low to 1.28 million barrels a day in December due to lower arrivals of Urals caused by disruptions in Russian Black Sea port loading operations due to bad weather conditions in November, as per energy cargo tracker Vortexa. The country also saw nil imports of the Sokol grade for the first time in 13 months in December as a result of payment issues between Indian Oil Corp and Sakhalin-1 LLC.
As per a report by Reuters earlier in the month, Indian Oil Corp and Bharat Petroleum Corp were looking at lifting an additional 1 million barrels of oil each from Saudi Aramco in February after the price cuts.
“The fact that it was IOC reaching out to Saudi Aramco was in large part predicated on the past weeks’ Sokol issues where payment difficulties have limited IOC in receiving its usual tally of 6-7 Sokol cargoes per month,” said Katona.
Moreover, global prices of oil have once again come under pressure due to a bearish demand outlook, Huang noted. “Rising geopolitical tensions are posing growing risks of supply disruptions which could see more volatility in prices ahead,” Huang said.
Source: The Financial Express
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