India’s state refiners are considering purchasing fewer barrels from Saudi Arabia in May after the OPEC ignored New Delhi’s call for higher supplies to calm international crude oil prices.
They have yet to take a final call as the move risks a Saudi retaliation and souring of decades-old ties between the two countries.
The extended output cut by Saudi and its allies, which has pushed up prices by a third this year to above $68 a barrel on Wednesday, has driven Indian prices to record highs.
Indian Oil Corporation, HPCL, BPCL and MRPL have discussed the possibility of reducing Saudi oil purchase for May and have until April 5 to inform Riyadh about this, said people with knowledge of the matter.
Weaker demand due to increasing Covid-19 cases or regular maintenance shutdowns may also contribute to lower purchase from Saudi Arabia in May, they said.
Refiners have annual purchase deals with Saudi Arabia and must share their monthly loading plans about four weeks in advance. The term deals are on a best Endeavour basis and there is no financial penalty for not honouring the deal, but both Saudi Arabia and Indian refiners have by and large honoured their side of the deal for decades.
“India is trying to flex its muscles, hoping Saudis will understand its concerns,” said a person with direct knowledge of the matter.
India, the world’s third-largest importer, has been especially peeved after the Saudi oil minister suggested recently that the country dip into its cheap oil reserves to fight current high prices while ignoring New Delhi’s call for boosting supplies.
“How Saudis will react to it is hard to guess. They might cut supplies to India at some difficult time in future. Maybe they make it hard to renew the purchase deal next year,” said another person.
Replacing Saudi oil with supplies from elsewhere would not, however, offer any price advantage to India as refiners will have to pay the market price for any substitute barrel, said the person.
Saudi Arabia, which considers itself the “guardian” of the oil industry, has shared cordial business relations with India for decades which have only strengthened in recent years.
It was the top supplier to India for several years but lost the crown lately to others due to its self-imposed output cut. The two countries showed cooperation last year after the demand collapsed, leaving Indian refineries with limited capacity to absorb the agreed supply.
Saudi Aramco has also agreed to partner Indian refiners to build an Rs 3 lakh crore refinery-cum-petrochemical complex. It is also in talks with Reliance Industries to buy a stake in the latter’s refinery.