Sanctions Hit Oil Market

The international petroleum market has been adversely affected by the US sanctions against India in the wake of its recent nuclear tests.

The market, which should have looked up on Thursday following the resignation of President Suharto of Indonesia, continued its downtrend because of lower-than-expected purchases of high-speed diesel (HSD) by India.

While HSD has moved down further from around $15.45 a barrel to $15 a barrel, kerosene has fallen from $16.20 a barrel to $15.85 a barrel.

Indian Oil Corporation (IOC) has been making dismal purchases of HSD in the past six months because of the general slowdown in the economy and the uncertain political situation following the installation of a fragile coalition government at the Centre. The corporation's HSD purchase tender for July, which closed last week, left the market totally disappointed.

The market has been expecting healthy purchases by IOC for July requirements, especially since IOC's purchases for June were also quite dismal. In total, through two tenders, IOC bought only nine cargoes of 40,000-45,000 tonnes each in June though it was largely expected to take 10 to 12 cargoes.

Oil traders fear that India might cut down its oil imports further if US economic sanctions are stepped up, squeezing its buying ability.

India's oil demand growth slowed down to about 5 per cent for the fiscal ending March 31, 1998, bringing the total to 1.78 million barrels a day.

Though the government is still forecasting slightly more rapid expansion of 6-7 per cent for the next 12 months, this looks unlikely in the face of an ominous mix of near recession, falling auto sales, and high product prices that are nibbling away at growth rates.

HSD demand grew by 6.3 per cent between April and December 1997, against 8.7 per cent in the same period of the preceding year, and the pace eased to just 4.5 per cent in the fourth quarter of 1997-98.

The only fast-selling product were naphtha, which had a 15 per cent growth after two million tonnes of cracking capacity was commissioned in 1996-97, and liquefied petroleum gas, whose demand grew by 9.9 per cent.