-
Indian refiners may take less Saudi oil next year if contract terms are ‘unfavourable’
Indian state refiners may seek a smaller purchase deal for Saudi oil next year to pressure the kingdom into altering some of the contractual terms ‘unfavourable’ to the buyer, a person with direct knowledge of the matter said.
“We can reduce the quantity in term contract next year if terms are not favourable to us,” the person said. Saudi Arabia is one of the top suppliers to India and most state and private Indian refiners have depended on it for supplies for decades.
Refiners, however, feel some of the terms of the Saudi annual deals are unfavourable to India and must change quickly. “Contract should become flexible. Right now, it’s seller’s monopoly,” said the person cited above.“We can’t take more when prices are low. Nor can we order less when prices rise because orders are placed so much in advance and there are certain broader monthly commitments,” he added. For instance, a buyer must offer its loading plans for May by April 5.
Refiners want ‘price flexibility’ and ‘certainty of supply’ even during times when production falls due to various reasons, he said. The annual contract permits Saudi to cut supplies to the buyer in the event of the organisation of petroleum exporting countries (OPEC) agreeing to artificially reduce production, the person said, calling the provision ‘unfavourable’ to the buyer.
The OPEC output cut to boost oil prices has been at the heart of recent tensions between India and Saudi Arabia. After Saudi and allies ignored India’s call to increase supply last month, Indian state refiners discussed the possibility of taking less oil in May. Purchase contracts with Saudi permit refiners to vary volumes by month but the overall annual commitment must be honoured.
India, the third-largest consumer of oil, hopes to use the might of its market to change the terms of engagement with big suppliers. State refiners plan to collectively bargain purchase terms with suppliers. They also plan to coordinate with Indian private refiners and share industry intelligence.
To reduce dependence on Middle-East producers, Indian refiners are scouting for other supply sources. They are now sourcing more from the US. An Indian refinery has also taken the first consignment of oil from Guyana. Due to its geographical proximity, the middle-east can, however, supply cargoes in less time and at low freight rates.
Share This
India imports 85% of its oil needs and is vulnerable to global supply and price shocks. It wants to have a diversified supply base.
