Indian state refiners cut Saudi oil purchases, continue diversification with WAF

London (Quantum Commodity Intelligence) — India's IOC snapped up around 8 million barrels of West African crude oil last week, as state-controlled refiners look for alternatives to crude supplied from Saudi Arabia.

Indian state-owned refiners have cut Saudi purchases by around a third for May in protest at the Saudi-led OPEC group supporting oil prices with deep production cuts implemented to counter the COVID-19 demand slump.

Reuters calculated that state refiners will take less than 10 million barrels of Saudi crude in May, compared to the usual figure of closer to 15 million barrels per month.  

Various media reports said IOC bought May/June cargoes of Forcados, Agbami, Oguendjo and Akpo from suppliers including Shell, Glencore and Equinor.

After the OPEC+ producer group left supplies unchanged at its March meeting, India's minister for petroleum told Reuters; "the decision by OPEC+ has saddened us. It is not good news for India, China, Japan, Korea and other consuming nations,"

Reuters further quoted an Indian government source saying; "we have asked companies to aggressively look for diversification. We cannot be held hostage to the arbitrary decision of Middle East producers."

However, market watchers noted that Indian refiners have been procuring West African grades for many years, and further substitution could be difficult due to the broader quality differences between Middle East grades and West African.

The Middle East produces more medium sour and heavy crudes, while West African grades tend to be on the lighter side.

Older refineries in India were largely constructed to process heavier barrels from the Middle East, for which India enjoys a significant freight advantage compared to importing from other regions.

The heavy-crude market has generally been in tight supply over the last three years, mainly due to sanctions against heavy-crude producers Iran and Venezuela.

Middle East sources have pointed to India's domestic tax policy for the sharp hike in retail prices, which has become a major political issue ahead of upcoming elections.

Saudi Arabia agreed with fellow OPEC+ producers on April 1 to start increasing production from May, which has led to prices falling by around 5% since late March.

Light sweet ICE Brent futures were trading at $62.98/b in Asian trading Monday, little changed on pre-weekend levels. Medium sour DME Oman was also flat at $61.30/b, a discount of around $1.65/b to Brent.