The relationship between India and OPEC is more important than ever. Any lingering resentment between India and Saudi Arabia over their row over the price of crude earlier this year should be quickly put aside, to focus on the growing importance of each as a consumer and supplier.
If OPEC needed a sobering reminder of India’s importance as a customer, it received it in the worst possible way: the resurgence of the coronavirus pandemic in the third largest importer of oil to the world.
Oil demand growth in India is expected to be just 350,000 barrels per day (b / d) in 2021, according to S&P Global Platts Analytics, given the extreme weakness in consumption in April and May, with strong resumed later this year.
Given the harshness of oil use in India by the second wave of the pandemic, Platts Analytics sees oil demand remaining below 2019 levels due to a poor first half.
Meanwhile, if India needed a reminder of the importance of a steady and steady supply from the Middle East, it only needs to look into the cybersecurity attack on the Colonial Pipeline to the States. -United or the risks of tankers traveling expensive long distances to deliver crude.
So, while India has called on state refiners to step up the diversification of crude imports to reduce reliance on the Middle East, don’t expect big upheavals. Variety is important for security of supply, but so is raw quality refiners.
A review of data for the first quarter of 2021 reveals that the Middle East continues to be India’s largest supplier of crude, even though its share has fallen 2 percentage points to 59%, due to the diversification of India. While there is a great deal of merit in having a range of crude sources to purchase, refiners have their preferred crudes for the products they produce.
In March, Indian Petroleum Minister Dharmendra Pradhan called Saudi Arabia’s council to reduce oil storage to combat high crude prices as “non-diplomatic.” Pradhan has repeatedly criticized cuts initiated by OPEC and Saudi Arabia to support oil prices and spoke of the need to seek alternative sources of supply.
The larger OPEC + alliance, which controls about half of the world’s crude production capacity, is expected to meet online on June 1 to assess market conditions and consider plans to increase production online.
From May to June, the coalition is expected to increase production by around 2.1 million b / d – of which around 1.4 million b / d will come from Saudi Arabia, which has implemented a further production cut. below her quota that she plans to relax.
Saudi Arabia, the world’s largest exporter of crude, said it pumped 8.134 million bpd in April, against a quota of 9.12 million bpd.
Iran is complicating OPEC + plans to bring more crude back to market and potentially offer more choices in Middle Eastern crude grades to India and other buyers.
The OPEC member is set to finalize an agreement with the United States for sanctions relief amid significant progress made towards reinstating the nuclear deal. Iran has pumped more crude in recent months and found a stable customer in China, according to market sources. The country’s total production reached 2.43 million bpd in April, the highest since May 2019, according to the latest Platts survey from May 10.
Platts Analytics predicts Iranian crude and condensate exports will grow from around 800,000 b / d in April to 1.4 million b / d in December and 2 million b / d in July 2022.
India, Japan and South Korea halted imports altogether after the United States withdrew oil sanctions waivers in early 2019. Indian refiners bought nearly 800,000 bpd of Iranian crude in 2017 and will be spoiled for choice from other key suppliers like Iraq and Saudi Arabia.
And while analysts are divided on where oil prices go, according to Platts Analytics, fundamentals continue to suggest support for Dated Brent above $ 70 / b in July before slowing down for the rest of the year. .
So while India may feel the strain of both the pandemic and the rise in oil prices, the darkest hour is just before dawn. And that dawn for India could be one of closer ties with OPEC and the growing importance of the other as consumer and supplier.
Based in London, Paul Hickin is Associate Director of S&P Global Platts. The views are his.