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Indian state-controlled refiners have written to Saudi Arabia and other Middle East crude suppliers expressing their concerns over a steep hike in formula prices for July.
State-controlled Saudi Aramco set its July official prices (OSPs) for buyers in Asia-Pacific at a four-month high, as part of across-the-board increases that sharply exceeded the expectations of Asian and European refiners.
The price increases, and supply cuts, may prompt Indian refiners to turn to the spot market despite signs of tightening availability. Saudi Arabia will cut its basic term allocations by 10-20pc in July, in line with June shipments, and not supply optional volumes.
Indian refiners had expected Saudi Arabia to price its light and medium grades in July at discounts to the average of monthly Oman and Dubai crude assessments, in line with April levels. Aramco set the discount for its key June-loading Arab Light crude to Asia-Pacific at $5.90/bl to Oman/Dubai, compared with a $7.30/bl discount for May and $3.10/bl discount in April.
The $5.60-7.30/bl increase in July levels over June was a disappointment and led Indian refiners to officially complain. The UAE, Iraq and Kuwait will follow the Saudi lead when setting their prices, officials said.”We were surprised by the significant hardening of the OSPs compared to the previous month,” said R Ramachandran, refinery head at state-controlled Bharat Petroleum (BPCL).
Indian fuel demand has increased this month over May and is expected to further rise in July, as the government further relaxes the current phase of its Covid-19 lockdown that is due to end on 30 June. But the spot market is turning tight, Ramachandran said.
Indian refiners may draw some crude from their floating storage, which totalled around 66mn bl last month, to rein in crude costs in July. India built stocks of crude on tankers and in its strategic reserves at prices of around $20-22/bl, oil minister Dharmendra Pradhan said last month.
Saudi Arabia is India’s second-largest crude supplier behind Iraq. The Middle East accounts for around 60pc of India’s crude imports, which fell by around 12pc from a year earlier to 4.2mn b/d in April, according to the most recent government figures.