India’s imports of Saudi oil in September slump to a multi-year low

Currently, Saudi Arabia is the third-biggest supplier of crude oil to India, behind Russia, the top supplier, and Iraq. Traditionally, Riyadh used to be New Delhi’s second-biggest source of crude after Baghdad. But after the war in Ukraine broke out, Russia displaced Iraq and Saudi Arabia as India’s largest oil supplier by offering deep discounts on its crude.

RIL is the biggest Indian buyer of Saudi Arabian crude, accounting for around 35 per cent of the oil imports from that country, as per Kpler’s analysis. The refining major recently informed stock exchanges that it planned to undertake maintenance and inspection shutdown of a few units for durations varying from four to seven weeks.

According to Kpler’s Lead Crude Analyst Viktor Katona, apart from RIL’s maintenance shutdown, the recent rise in prices of Saudi Arabian crudes — like Arab Light and Arab Heavy — vis-a-vis competing medium-sour grades like Oman, Dubai and Basrah Medium (Iraq) from the region has led to a reduced appetite for the former, at least for the time being. Russia’s flagship grade Urals, which accounts for the lion’s share of India’s Russian oil imports — is also a medium-sour crude. In fact, the month-on-month decline in Saudi Arabian oil imports being seen in September comes alongside sequentially higher Russian and Iraqi oil supplies.

“The key consequence of Saudi Arabia’s OPEC+ production cuts and Russia’s export cuts has been the relative dearth of medium-sour (crude) supply in the markets,” Katona said, adding that while prices of medium-sour grades have generally risen, those of the Saudi Arabian grades are have climbed more and are trading at a premium.

Oil prices have been volatile for some time now, but the general direction over the past few months has been upward. Global benchmark Brent is currently hovering around $95 per barrel, and some analysts and market participants expect it to even hit $100 a barrel over concerns of a possible supply deficit during the high winter demand season and indications that major oil producers could consider deeper production cuts going ahead. The latest trigger for an uptick in oil prices came earlier this month when Saudi Arabia and Russia surprised the world by announcing an extension of their voluntary supply cuts–totalling 1.3 million bpd–till the end of 2023.

In June, Saudi Arabia announced that it would voluntarily cut its oil output by 1 million (bpd) starting July, over and above OPEC+ cuts totalling 3.66 million bpd, which shall be in place till the end of 2024. Then in July, Russia announced additional production cuts starting August. OPEC+ is a larger group of major oil producing nations and includes members of the Organization of the Petroleum Exporting Countries (OPEC), along with Russia and a few other producers. OPEC+ produces around 40 per cent of the world’s crude oil, with Saudi Arabia as the top producer and Russia in the second spot.

Given Saudi Arabia’s strong energy ties with India, which is a major oil importer, and expectations of higher oil demand in India during the festival season, Katona expects India’s imports of Saudi Arabian oil to recover over the next few months. There are also indications that Saudi Arabia might be regulating its official prices to keep its key crude grades competitive.

“Looking forward, India will most definitely buy more Saudi barrels in Q4 (October-December). First of all, overall Indian demand will rebound strongly as the monsoon season is over and refinery maintenance will be over by mid-October. So, November and December will see very strong refining activity and robust domestic demand. And for that, Indian refiners will need to buy more crude in general,” Katona said.

“Also, Saudi Arabia is cognizant of the difficulties in higher prices, that is why it hiked its October formula price for Asia only marginally. The likes of Arab Light and Arab Medium went up by only $0.10/barrel versus September even though they could have increased much more. So, Saudi barrels are priced more adequately now as we head into the winter…Saudi imports should move to the 700,000-bpd mark by year-end. It’s still lower than historical averages, but Indian refiners don’t want to lose the traditionally good relationship with Saudi Aramco (Saudi Arabian Oil Company) so they will nominate more,” he added.