Indian refiners deepen cuts to Saudi oil purchases in May

Apr 6,2021

According to three sources, Indian state refiners will buy 36% less oil from Saudi Arabia in May than normal, indicating escalating tensions with Riyadh despite the Kingdom's support for increasing production from OPEC and allied producers last week.

Energy relations between India, the world's third-largest importer and producer of crude, and Saudi Arabia have deteriorated as global oil prices have skyrocketed. As the economy struggles to rebound from the pandemic, New Delhi accuses Saudi and other oil producers of pushing up crude prices.

State-run refiners have placed orders to buy 9.5 million barrels of Saudi oil in May, compared with the previously planned 10.8 million barrels, three sources said.

The refiners - Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp and Mangalore Refinery and Petrochemicals Ltd - normally buy 14.8 million barrels of Saudi oil in a month.

The decision to place nominations for less oil was taken on Monday, within two days of a telephone conversation between Indian oil minister Dharmendra Pradhan and his Saudi counterpart Prince Abdulaziz bin Salman on Saturday, three sources said.

Contents of the conversation between the two ministers are not known. No immediate comment was available from the Indian companies, Saudi Aramco or the Saudi oil ministry.

On Thursday The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, agreed to gradually ease their oil output cuts from May after the new U.S. administration called on Saudi Arabia, the de facto leader of the group, to keep energy affordable for consumers.

On Sunday Saudi Aramco, the state oil company of the Kingdom, raised the official selling price, or OSP, of its oil for Asia while cutting it for Europe and American markets.

"We were surprised when they announced cuts for other markets while raising OSPs for Asia," said one of the sources.

India suggested refiners look for energy alternatives to Gulf oil, its main source of crude.

Tensions between the two countries further escalated last month after Abdulaziz advised India to use the stocks of crude it bought cheaply during the price slump in 2020. Pradhan termed Abdulaziz's response as "undiplomatic".

To dial down the disagreement, Abdulaziz last week said Aramco maintained normal April oil supplies to Indian refiners while cutting volumes for other buyers and conceded that voluntary output curbs have put "Aramco in some difficulty with some of its partners".

He also said that Saudi will phase out its additional voluntary cut in stages by July.

Meanwhile, Indian state refiners have begun diversification of purchases to include Brazil's Tupi grade, Guyana's Liza oil and Norway's Johan Sevredrup in their crude diet.

On Friday Arindam Bagchi, spokesman for the foreign affairs ministry said, "We've always believed that crude supply should be market-determined rather than artificially managed."

He said even though OPEC+ has announced a slight easing of oil output cuts, they are still far below India's expectations.

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