Middle East crude continues to draw Indian refiners despite diversification move

Middle East crude oil has been a mainstay of the Indian refining sector for many decades. India imports about 85 per cent of its annual crude oil requirements. The country imported about 4.1 million barrel per day of crude oil in 2020, out of which close to 65 per cent came from the Middle East.

Freight also plays a significant role in Indian refiners’ crude purchasing, with a preference for flexible short-haul crudes. Crude shipments from the Middle East can be as quick as four to five days, while voyages from Columbia take about 30 days and from Venezuela about 40-45 days.

Indian state refiners are reportedly trying hard to further diversify crude procurement following a rift with Saudi Arabia over the kingdom’s position on production curbs to support prices.

Key market indicators suggest Middle East crudes remain the most competitive option for Indian refiners, although supply gluts elsewhere are presenting opportunities to buy more oil from places like West Africa and Latin America.

Producers, refiners and traders use oil benchmarks to analyze arbitrage economics. Platts Dated Brent and Platts Dubai are among the most widely used benchmarks globally for physical crude oil prices. The Brent/Dubai exchange of futures for swaps contract or EFS is a measure of medium, high sulfur crudes’ discount to light, low sulfur grades. A wider EFS makes crude priced against Dubai more economic for Asian refiners compared to Brent-linked ones and the spread is a key determinant of flow for various grades of oil around the world.

The Brent/Dubai EFS has risen above $3 per barrel in April as the recently announced easing of OPEC+ production cuts from May weighs on sentiment for Middle East crude supply in the coming months amid uncertainty on the demand side.