NEW DELHI: Refinery run rates are falling again after nearing pre-Covid levels, which may reduce crude oil imports as local lockdowns, monsoon and record prices hit demand.
Average capacity utilisation at Indian Oil Corp NSE 1.61 %, India’s largest refiner, has declined from 94% to 85% in a week, as domestic demand recovery stalled in July and the export market remained oversupplied, a company executive said. Run rates at Hindustan Petroleum and Bharat Petroleum NSE -1.46 % too fell, as per industry executives.
This is lowering crude purchases by refiners. “We will have to cut back on crude purchases. Oil is no more so cheap that we would want to buy it for storing it,” said an executive at a state-run refiner. Crude oil prices have more than doubled to $43 a barrel since late April. “We will mainly cut back on spot purchases and optional quantities under term deals,” he said.
In the last few years, state refiners have usually sourced 30% from the spot market and the balance under annual purchase deals, which typically have both firm and optional quantity commitments.
For refiners, it wouldn’t be difficult to cut purchases as key suppliers such as Saudi Arabia and Iraq too are reducing exports to meet their production cut targets, the executive said. Nearly two dozen producers, led by Saudi Arabia and Russia, have agreed to keep an artificial lid on production to support prices.