Saudi Arabia is set to deliver extra 4 million barrels of its oil to India in November, Reuters reported on Wednesday, citing several sources familiar with the plans, in what could be a Saudi move to replace the loss of Iranian barrels due to the U.S. sanctions on Tehran returning early next month.
According to Reuters sources, Reliance Industries, Hindustan Petroleum, Bharat Petroleum, and Mangalore Refinery Petrochemicals would be looking for an additional 1 million barrels each from the Saudis next month.
One reason for more demand from Saudi Arabia is that the arbitrage for U.S. crude oil cargoes is currently shut, so Indian oil refiners need to procure more oil from Middle Eastern producers, one of the sources said.
Last week, reports emerged that India would buy a total of 9 million barrels of oil from Iran in November, suggesting that India will continue to purchase Iranian crude even after the U.S. sanctions on Tehran return.
India is Iran’s second-largest single oil customer after China and was expected to cut back on Iranian oil purchases, but unlikely to cut off completely the cheap Iranian oil that is suitable for its refineries.
India wants to keep importing oil from Iran, because Tehran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill. Related: A New Era Of Geopolitical Risk In Global Oil Markets
But the U.S. continues to insist that it expects Iranian oil buyers to bring their purchases down to zero.
Earlier this week, Indian officials said that they hoped India could secure a waiver from the United States, because it has significantly reduced purchases of Iranian oil. Late last week, the United States hinted that it was at least considering waivers.
Meanwhile, archrival Saudi Arabia and Iran are exchanging in the media diverging opinions on who’s making up for lost Iranian oil barrels, or rather whether it’s even possible to do so. The Saudis insist that they have been more than compensating and have capacity to turn on if the market demands it. Iran, on the other hand, is steadfast in its claims that no one can compensate.
By Tsvetana Paraskova for Oilprice.com
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India might spurn the Saudi offer of oil supplies if the intention is to undermine Iranian crude exports. India is the second-biggest buyer of Iranian crude accounting for 33% of all Iranian oil exports. Moreover, Iran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill.
A week ago, Bloomberg, Goldman Sachs and other investment banks and analysts of different shapes and sizes claimed that India is going to cut its crude oil imports from Iran. It transpired, however, that India will buy a total of 9 million barrels of oil from Iran in November even after the US sanctions are implemented.
The Trump administration is deluding itself when it says that it expects Iranian oil buyers to bring their purchases down to zero or sanctions will be imposed on them.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London