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Press Release [FREE Access]
Petro Intelligence » Sweet Factor Blunts Appeal Of US Crudes

by R. Sasankan

Crude oil prices are on the boil once again but Indian importers are not looking frazzled - yet. There is a reason why India's top crude refiners haven't lost their sangfroid. One of the big developments in the global petroleum market since the outbreak of the Ukrainian crisis in February 2022 is that the balance of power has tilted significantly towards buyers of crude.

The crude oil market is awash with supplies especially after Russia and the US started cranking up supplies and reaching out to markets where they had rarely ventured before. Result: India - one of the fastest growing economies in the world and one of the largest importers of crude oil - is sitting very pretty as it juggles with a myriad supply options. As the engines of an energy-scarce economy like India start to fire, the country's oil demand is projected to double in six years.

The pivot for this change in crude oil dynamics - if one can call it that - has been the Ukraine crisis. Russian crudes, which had only a very marginal presence (less than 2 per cent) in Indian market at one stage, captured up to 40 per cent of the market share as it wooed buyers with huge price discounts.

In recent months, however, the market share of Russian crude has started to fall and market mavens do not rule out the possibility that it might shrink further in the coming months. Such a situation can be averted only if the Modi government succeeds in prevailing on the Biden Administration not to tighten sanctions against Russian shipments. Russia's ability to fork out discounts will also have a bearing on the state of play in the crude oil market.

The other big factor - which came into play around the same time as the Russian gambit - was that US crude oil and LNG shipments started to come to India. The US has now emerged as the biggest exporter of liquefied natural gas (LNG) and the largest producer of crude oil, producing 21 per cent of the world's oil. It is now the third largest source of LNG for India and the fourth largest supplier of crude oil. Indications are that the US will play a bigger role in the Indian market in the coming days. It remains to be seen whether Russia will be able to up its game as it bids to retain a big share of the Indian market for crude oil.

The market dynamic will hinge on one major factor: the split in the share between sweet and sour crudes. India traditionally has been a huge consumer of sour crudes, sourced from the Gulf nations.

US crude falls in the category of West Texas Intermediate (WTI). It is one of the three major oil benchmarks used in oil trading -- the other two being Brent crude and Dubai/Oman. WTI has a sulphur content of 0.24%, making it very "sweet." Brent has a sulphur content of 0.40%, well under the 0.50% benchmark.

Will India benefit from the sudden US dominance in crude and LNG? India lost two of its attractive crude oil sources -- Iran and Venezuela -- on account of the US sanctions against those countries. Iran has been a crude oil supplier for India for many years and was acknowledged to be the most attractive for India in view of its geographical proximity and liberal credit terms. Venezuela has been the biggest source for heavy crude.

High sulphur crude is cheaper and most of the Indian refineries are designed to process it. The US crude does not hold a great deal of attraction for India because it is "sweet" (low sulphur). Judging by the types of crude being used in India, high sulphur/low sulphur crude ratio is 78% HS /22% LS. The low sulphur category includes domestic Bombay High crude which is about 28 million tons. Low sulphur crude imports account for only 23 million tons - or less than 10 per cent of import. The US crudes will have to fit into that tiny sliver of 10 per cent. Considering the distance, the transportation cost acts as a big disincentive to US crudes. This is partly offset because of the price difference between WTI and Brent which is close to $ 4 per barrel today.

True, sweet crude can be used for blending, which some parties are already doing. But there is a limit to it. Moreover, one cannot enter into a long-term contract for crude purchases offering any kind of fixed prices. Not very long ago, WTI was more expensive than Brent in the spot market. Today, it is the exact opposite. But the competition from the US crude can have a positive impact on the Indian market as it can force the Middle East suppliers to offer better prices to Indian buyers.

As far as LNG imports are concerned, a long-term deal makes eminent sense if the terms of the contract are properly negotiated. Certainly, Qatar is better placed to offer attractive terms to India. Its cost of production is considerably cheaper than that in the US. In terms of liquefaction there is not much difference between the US and Qatar. Everything depends on India's ability to secure better terms. This is where one needs the most experienced genuine energy experts to hammer out the terms of the contracts.


To download the latest issue 'Volume 31 Issue 3 - May 10, 2024', click here
Petro Intelligence [FREE Access]
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Sweet Factor Blunts Appeal Of US Crudes
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Greatest Uncertainty Faced By The International Oil Industry
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Sector-wise Consumption Of Natural Gas
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Near Total LPG Penetration Achieved
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India’s Fluctuating Gas Import Dependency
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Sectoral Consumption Of Natural Gas
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Data Section
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India’s Widening Petroleum Industry Marketing Infrastructure
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