Despite $90 oil prices, state refiners at the world’s third-largest oil importer, India, are scouring the market for spot supply to top their term contract deliveries as state-owned refineries look to meet annual output targets.
Most of India’s 23 refineries operated at above nameplate capacity in January, and many are buying cargoes on the spot market to reach the 2021/2022 fiscal year refinery production goals, officials at refineries told Bloomberg.
The high demand in India’s 2021/2022 fourth-quarter between January and March could be yet another bullish factor for oil prices, which have rallied by nearly 20 percent so far this year.
Average refinery run rates at Indian refineries were 101 percent in January, compared to 87 percent in August last year, the refinery officials familiar with the situation told Bloomberg.
The biggest state oil refiners, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), are buying more crude oil on the spot market or asking their term contract suppliers Iraq and Saudi Arabia for extra barrels of oil, Bloomberg’s sources said.
So far in the fiscal 2021/2022 year ending March 2022, refiners have been lagging behind the production targets due to the COVID wave in the summer of 2021.
Apart from chasing targets, Indian refiners are incentivized to produce more diesel—the most widely used fuel in the country—because refining margins for the product are at their strongest in around two years.
IOC, for example, reported at the end of January a rise in net profit for the April-December 2021 period, thanks to higher refining margins. The gross refining margin (GRM) during the period April – December 2021 was US$8.52 per barrel, compared to US$2.96 per barrel in the same period of the previous financial year 2020/2021, the largest oil refiner in India said in a statement.
By Tsvetana Paraskova for Oilprice.com
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