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Weak crude oil prices driven by the coronavirus outbreak seem to
have positively affected demand for crude oil in India. Data by IHS
Markit Commodities at Sea suggest that India's seaborne imports of
crude oil surpassed 5 million b/d last week, for the first time
since mid-August. This has been the maximum achieved in the last
seven months. With oil prices pushed down, due to concern around
China's appetite for crude oil slowing down sharply due to the
virus, supply doesn't seem ready to adjust immediately, with
several fresh cargoes to be absorbed in the spot market. OPEC
members seem to be considering additional cuts, but with no
decision taken yet. As long as supply surpasses demand, India's oil
companies could only benefit.
With little potential now left in China's market, at least for
the coming weeks, all eyes now switch to India, with oil suppliers
trying to negotiate open cargoes with companies such as Indian Oil
Corporation, Bharat Petroleum Corporation Limited, Hindustan
Petroleum Corporation Limited and Reliance Industries Ltd and Essar
Oil. India's demand for crude oil is much more linked to volatility
of oil prices, with the country quickly increasing imports whenever
global oil prices are under pressure.
Some of the Indian refineries might face inventory losses in the
short-term, as a result of the recent drop in oil prices by up to
20 per cent drop month-on-month. But the longer the crisis lasts,
the bigger the benefit for the country's economy as local refiners
will manage to cut down on production costs.
Meanwhile, India is now understood to be in talks with Russia to
re-negotiate long-term imports of crude oil. This agreement could
support the two countries to more than double annual bilateral
trade to USD 25 billion, from current USD 11 billion. The two
countries recently signed a contract for supply of two million
tonnes of oil to India from Russia by end of the current year, with
plans to sign a long-term contract for supply of oil to India.
Posted 18 February 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
