India asks state refiner to review oil import contract with Saudi

A top official said that with Saudi Arabia, India has asked its state refiners to review the contract to buy crude from the Middle East nation and negotiate more favorable terms, with Saudi Arabia cutting oil production.

Eager to see producer cartels pricing and breaking contract terms, the government has asked Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) to sell oil from outside the central region See and use for supply Collective bargaining power to obtain favorable terms.

India imports 85% of its oil needs and is often vulnerable to global supply and price shocks. When oil prices started rising in February, it wanted Saudi Arabia to ease production controls, but Kindgom ignored its calls. With this, the Indian government is now pressing for diversification of the supply base.

“Traditionally, Saudi Arabia and other OPEC producers have been our main suppliers of crude oil. But their terms have often been loaded against the buyer, ”said the official with direct knowledge of the discussion.

For one, Indian firms buy two-thirds of their purchases or on fixed annual contracts.

He said that these contracts ensure the supply of the contracted quantity, but the pricing and other conditions are only in favor of the supplier.

“While buyers have an obligation to lift contracted quantities, Saudi and other producers have the option to reduce supply in terms of keeping production artificially low to raise prices. Why the consumer should pay for OPEC’s decisions ? If we want to move forward, they also do not mind.

More importantly, the buyer has to indicate at least six weeks in any month to lift the quantity out of the annual contract and pay the average official price declared by the manufacturer.

“In an ideal market, pricing should be on the day of loading. In this way we can reap the benefits of any fall in international oil rates. But that is not the case. They (Saudi and other OPEC suppliers) insist on selling only at their official selling price, ”the official said.

To begin, Indian refiners will look to reduce the amount they buy through term contracts and instead buy more from the spot or the current market.

Purchasing from the spot market will ensure that India can take advantage of the fall in prices on any given day.

“It’s like the stock market. You may want to buy shares on a day or time when prices are low. So it is the case with crude oil – when we see that we want to buy a drop. Word contracts deviate us from that flexibility, ”he said.

Indian refiners have made spot purchases ranging from 30-35% to 20% of the total oil purchased so far.

“We want flexibility as well as certainty of supply during production for any reason,” the official said. And Naira Energy.

When India achieves a favorable period, it will buy oil. “The choice of time of supply, flexibility on quantity (ability to reduce or increase) and supply certainty is exactly what we are looking for.” Oil producers have cut OPEC output to boost oil prices, at the heart of recent tensions between India and Saudi Arabia. Saudi and its allies ignored India’s call to increase supplies last month, prompting Indian state refiners to discuss the possibility of consuming less oil in May.

Purchase contracts with Saudi permit refiners can vary by month but the overall annual commitment must be honored.

India, the world’s third largest consumer of oil, hopes to use the strength of its market to change the terms of engagement with large suppliers.

The Middle East accounts for 60% of all the oil purchased by India while Latin America and Africa are the other big supplier blocks.

In recent months, India has purchased from the US and new sources of oil such as Guyana, which has a large Indian diaspora.

Due to its geographical proximity, the Middle East, however, can supply cargo in shorter timescales and lower freight rates.