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In parallel to uncertainty increasing after saboteurs attacked
Saudi Arabian oil tankers amid Middle East tensions between the US
and Iran, the market still needs to adjust to the new conditions,
as major importers seem to have nearly abandoned Iranian barrels.
Of great interest has been India's response, the country's demand
remains healthy, but may face a higher cost for additional imports
from other producers.
After significantly improving its market share in China, Saudi
Arabia now seems focussed on exports to India. The world's largest
oil company Saudi Aramco has started to provide additional crude
oil to India's oil refiners in parallel to shortages arising since
the US decided to lift Iran sanction waivers. The leading producer
of the Middle East Gulf offered to increase its crude oil flows to
India by 200 thousand barrels per day (b/d). This is the equivalent
to at least half of the volumes the country used to import from
Iran since November 2018. Iran has been the third major exporter to
India so far in 2019, after Iraq and Saudi Arabia, but this has
dropped since the middle of last month.
Data made available by IHS Markit's Commodities at Sea suggests that
Iraq will increase its flows to India during May, with liftings
during the first ten days of the month pushed higher than a month
ago, but still below 1.5 million b/d. This spike is believed to be
the result of the immediate response of Indian refiners after the
relevant announcement by US President Trump a couple of weeks ago.
In an effort to avoid any disruption, importers rushed to order
more Iraqi barrels to fill any gap that might be created after May
2.
Saudi Arabia immediately responded by trying to take advantage
of the opportunity, with the first of the additional Saudi Arabian
volumes expected to reach India in June, some minor flows from Iran
are still in place, since these contracts were agreed earlier.
However, the solution provided is not that popular, as the
preferred terms given by Iran could not be met. Without doubt,
refiners might face the significantly higher cost of Arab light
crude. Meanwhile, Indian refiners were offered a 60-day credit for
oil deliveries from Iran, together with dynamic discounts on
freight and insurance. India will get charged a premium, as the
country primarily focuses on preventing any disruptions.
India seems to be also proceeding with replacing Venezuelan
barrels with volumes from other producers across Latin America,
such as Brazil and Mexico, with an eye on West African producers as
well. The country has already established healthy relationships
with these countries and volumes are expected to further increase
over the second half of this year, in parallel to the US adding
pressure for India to avoid Venezuelan barrels.
Meanwhile, the world's largest refinery will be shut down for
around a month, with planned maintenance to commence in the middle
of June. The facility at the Jamnagar refinery in India which is
controlled by Reliance Industries has a capacity to process 330
thousand b/d of crude oil. Maintenance carried out earlier this
year at the other crude unit lasted for four weeks.
Posted 13 May 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit