India’s oil market is lagging behind its fellow Asian refiners in terms of recovery from the devastation that Covid-19 has inflicted, with both crude imports and refinery runs for May at below-average levels, as the country of 1.3 billion people remains under lockdown, with recovery expected after Q2.
- By Yaw Yan Chong
India’s oil market is lagging behind its fellow Asian refiners in terms of recovery from the devastation that Covid-19 has inflicted, with both crude imports and refinery runs for May at below-average levels, as the country of 1.3 billion people remains under lockdown, with recovery expected after Q2. The country imported 4.1-4.2 million barrels-per-day (bpd) of crude for May, assessments by Refinitiv Oil Research showed, well below the February-April average 4.76 million bpd and under the 2019 average of 4.37 million bpd, while refinery runs were at under 80% of its 5.1 million bpd capacity for a second straight month, at around 76% for the month.
In comparison, crude arrivals into Asia’s top four refining centres – China, India, South Korea and Japan – were at all-time high levels of 21.8 million bpd, boosted by record-high inflows to China and South Korea, respectively at 11.4 million bpd and 3.5 million bpd.
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The record-high arrivals into China and South Korea, in part, are due to opportune timing, in that their recovery from Covid-19 came at around the same time when oil prices collapsed, when OPEC and Russia flooded the market with their oil, in a fight for market share.
For India, the timing was not quite so opportune. When the price war erupted in early March, India had yet to suffer from the worst of Covid-19. Its refiners, both the state-owned enterprises and private firms, were among the first to volunteer for the extra barrels that the Middle Eastern members of OPEC, mainly Saudi Arabia and the United Arab Emirates, were offering.
This led to near record-high imports for each month of February to April, at 4.7-4.8 million bpd for each of the three months.
Less than three weeks later, Covid-19 exploded in the country and it was placed under lockdown, with land and air transportation, as well as economic and industrial activities severely curtailed. Demand for refined products, mainly diesel, gasoline and jet fuel, nosedived; as refining margins all over the world were crushed, with that for gasoline and jet falling into the red, while that for diesel fell to multi-year lows of under $6/bbl.
Refinery runs, which had been high at above 90% from January thru March, plunged to a record-low of 71.4% for April, as the same Indian refiners, who had earlier asked for the incremental crude barrels now have a dilemma, slashed runs.
Indian Oil (IOC), Mangalore Refineries & Petrochemicals (MRPL) and Hindustan Petroleum (HPCL), slashed output by cutting refinery runs by about 1.4 million barrels-per-day of capacity, or about a third of the country’s 5 million bpd capacity.
IOC, which accounts for about a third of the country’s total capacity, has cut 25-30% of its 5-million bpd capacity; MRPL has shut its Panipat plant, while HPCL has declared force majeure on two Iraqi cargoes of 1 million barrels each and cut runs at its Mumbai facility by 10%. Even Reliance, the world’s largest refiner, was not spared, and was seen offering crude barrels in the Asia spot market. Both Mangalore Refineries & Petrochemicals (MRPL) and Hindustan Petroleum (HPCL) also declared force majeure on some of their crude liftings, mostly from the Middle East.
To cope with the sudden surplus in crude supply, the Indian government decided to move the extra barrels into its strategic petroleum reserves (SPR), with its entire 36.87-million-barrel capacity, at its three sites in the country’s south, fully filled.
In addition, India has also parked 8.5-9 million mt of crude on board vessels in different parts of the world, mainly the Arab Gulf. Oil Minister Dharmendra Pradhan said India is now looking at storing some low-priced U.S. oil in facilities there as the domestic storages are full.
Refinitiv Oil Research expects crude demand and refinery runs to pick up in June, versus May levels, as parts of the country emerges from lockdown, but a full recovery looks some way off as the number of Covid-19 infections remain high, with daily increases of over 1,000 cases, and the total number of infections at nearly 200,000 and deaths at 5,600.
- (Yaw Yan Chong is Director, Oil Research (Asia) at Refinitiv. The views expressed are the author’s own ideas)