Indian refiners are likely to consider the Venezuelan market to import discounted barrels, according to a report by S&P Global Commodity Insights. As the US has eased the sanctions on Venezuela including on its oil exports, if the refining economics would favour Venezuelan crude in the future, S&P Global has said that Indian refiners may need to displace crude from their existing sources, which might include West Asian, Latin American and US crudes. During the pre-sanctions period from 2017 to 2019, India imported approximately 300,000 barrels per day of Venezuelan crude grades. These imports represented around 5percent-7percent of India’s total crude oil imports during that time.
Earlier this month, the United States relaxed sanctions on Venezuela following an agreement between the government and the opposition to have next year’s election monitored by international observers. The move by the US has the potential to foster recovery and growth in the medium to long term, provided that the political agreements are upheld, according to S&P Global Commodity Insights.
The report indicates that Venezuelan oil production capacity is unlikely to see significant changes in the next six months. Venezuela’s state-run oil company PDVSA lacks investment capital, and much of the oil-related infrastructure is in a state of disrepair. Currently, Venezuela’s oil production capacity ranges between 800,000 and 850,000 barrels per day (bpd), with actual production at approximately 750,000 bpd.
Prior to the imposition of sanctions by the US, India was a regular buyer of Venezuelan crude oil grades. Between 2017 and 2019, India imported around 300,000 bpd of Venezuelan crude grades, with private refiners playing a significant role. These imports accounted for 5-7percent of India’s total crude oil imports during that period, as per S&P Global data.
The primary Venezuelan crude grade predominantly imported by India during those years was Merey-16, an ultra-heavy and sour grade with high acid content and an average API gravity of around 16. Processing Merey-16 required complex procedures and operational conditions due to its challenging nature. Consequently, Indian refiners received substantial discounts on Venezuelan crudes compared to those from other regions, according to S&P Global.
Sumit Ritolia, a refinery economics analyst at S&P Global, highlighted that the primary Venezuelan crude grade imported by India during that period was Merey-16. This grade’s distinctive characteristics necessitated complex processing methods and operating conditions, making it an attractive option for Indian refiners due to the discounted pricing offered by Venezuelan producers.
Ha Nguyen, the Executive Director of Global Crude Oil Markets at S&P Global Commodity Insights, mentioned that on October 18, the US Department of the Treasury eased oil, trade, and financial sanctions on Venezuela. This development allows US oil companies to explore and invest in Venezuela, with the possibility of renewing these activities if the Maduro government fulfils its political and electoral commitments. Furthermore, US oil refiners can now purchase oil directly from PDVSA, Venezuela’s state-owned oil company. This may lead to increased Venezuelan crude imports to the US market, potentially affecting China’s share.
During January-September, India’s oil demand increased by 5.6percent year-on-year to 171.34 million tonnes, equivalent to 4.9 million bpd. Diesel and gasoline demand also rose by 6.5percent and 7.4percent year-on-year, respectively. Additionally, demand for jet fuel surged by 20.5percent year-on-year, while naphtha saw a 3.7percent year-on-year increase over the same period.
India has diversified its sources of oil imports in recent years, with Russia emerging as the top supplier of crude oil to India post-February 2022, due to discounted pricing amid Western restrictions. In FY22, Russian oil constituted only 2percent of India’s total oil imports, but in FY23, it accounted for approximately one-fourth of India’s 235.52 million tonnes of crude oil imports. Other major suppliers to India include the UAE, Iraq, Saudi Arabia, Guyana, Brazil among others.
India’s future crude imports from Venezuela will depend on the country’s overall energy security policy, considering various supply sources to mitigate potential supply disruptions caused by geopolitical instability, according to government officials. India’s approach to importing Venezuelan crude will be based on its energy security principles and demand outlook.
Regarding pending payments to Indian companies with business interests in Venezuela, government spokesperson Arindam Bagchi stated that the issue would be addressed when the opportunity arises. India’s overseas exploration arm, ONGC Videsh Ltd., is also waiting for unpaid dividends of at least US$155.5 million from Venezuela’s San Cristobal oil exploration project, according to officials.