US, Saudi Arabia vie for larger share of India's crude oil import pie

Amid global oversupply, the US is emerging as a cost-competitive oil supplier to India, challenging Saudi Arabia and other Gulf producers even as Russian barrels dominate

The United States (US) and the Gulf, led by Saudi Arabia, are in competition for a larger share in the import of crude oil by India, the world’s fastest-growing oil consumer, amid growing pressure by Washington on India to stop purchases from Russia, its largest supplier.

 

Crude oil from the US is turning competitive owing to a global oversupply, running Mideast crude grades close and making it justifiable for Indian refiners to increase purchases for reasons of economics rather than political pressures, according to senior industry sources, pricing documents, and the shipping data. 

In response, Saudi Arabia, India’s third-biggest supplier and a bellwether to other Mideast grades, has moderated premiums, cutting official selling prices (OSPs) in Asia for November arrivals for its “Arab Medium” and “Arab Heavy” crudes by 30 cents a barrel, and keeping levels flat for its other crude grades compared to October.

 

Indian refineries are geared to process more medium, sour grades and less of the light, sweet varieties.

“The supply glut has been confirmed by recent pricing actions on the part of major producers,” said Johannes Rauball, an analyst at Kpler. “Following the lead of Saudi Aramco, both Iraq and Kuwait have reduced their OSPs across all regions, signalling that ample supply is readily available.”

 

Renewed US-China trade tensions have triggered a sharp selloff, with Brent and WTI (West Texas Intermediate) falling below $60 a barrel on Friday while a ceasefire in Gaza has extinguished the risk premium on oil.

 

US supplies to India reached 610,000 barrels a day (b/d), the fourth-biggest supplier for the month, and accounted for a 12 per cent all-time high share in India’s import, according to the data from maritime intelligence agency Kpler as of Friday.

 

The increase, from 207,000 b/d in September, has partly come at the cost of United Arab Emirates (UAE) crudes, which, at 373,000 b/d this month, were down from 581,000 in September.

 

US supplies in February 2021, at 592,000 b/d, are the record for a month. Russian oil continues to lead at 1.7 million b/d and has a 34 per cent market share.

 

Saudis are shipping 788,000 b/d for a 16 per cent share. This data can change by the end of the month.

Two officials in India’s refining sector told Business Standard that cheap US crude oil and competitive freight rates had led to an increase in recent orders.

 

WTI, the US benchmark, is competitive against lighter UAE oil like Murban despite West Asia being closer to India, a trader at a state-run refiner said.

 

The fear of investigation makes it difficult for state-run refiners to reject discounted Russian oil, another official said.

 

The trader expects the purchase of US oil to stay strong because WTI is anticipated to average $60 per barrel in the next few months because of ample supplies.

 

Favourable US economics helps state-run refiners to buy more oil from that country because unlike private refiners, those are obligated to purchase the most competitive crude oil, he added.

WTI fell to $58 a barrel last week.

 

The price of US oil sent to India on a delivered basis declined by $4 a barrel in August from $70 in July; the fall was steeper by $9 per barrel from the January-August average, according to the Indian customs data. What is revealing is that the US supplied the cheapest oil among India’s major suppliers, something not seen in the past few years, industry officials said.

 

US crude oil was the cheapest in August and was on a par with Iraq’s. It cost $6 less than that from Saudi Arabia and the United Arab Emirates and $1 less than discounted Russian oil in August, according to calculations based on the customs data.

 

Oil from the US was the most expensive in January-August, averaging $79. Oil from Iraq and Russia was the cheapest during the period, and Saudi Arabian supplies averaged $76.

 

US grades typically comprise a basket of premium priced light, sweet high quality oil and dirty, acidic, cheap Canadian grades shipped via US ports supplied on spot terms. Orders are placed two months in advance and the voyage time is 45 days because they have to go around Africa, avoiding the shorter but conflict-ridden Suez Canal route.