India could get a discount on Venezuelan crude imports: S&P Worldwide

 India could get a discount on Venezuelan crude imports: S&P Worldwide

Delhi, New: According to a research by S&P Global Commodity Insights, after the US lifted sanctions on oil from the Latin American nation, Indian refiners are expected to buy crude oil from Venezuela at a reduced price.

Recently, coker complexes have been running at full or even overcapacity, mostly because more inexpensive, high-sulfur Russian Urals oil is being processed. There isn't much opportunity for Venezuelan grades because of this," said S&P Global refinery economics analyst Sumit Ritolia.

According to the research, because Venezuela's state-run oil corporation PDVSA has "little to no investment capital and much of the oil-related infrastructure is in a poor state of repair," no improvement in the country's ability to produce oil is anticipated in the next six months. With a production of around 750,000 barrels per day (bpd), Venezuela's current capacity is between 800,000 and 850,000 bpd.

The US lifted sanctions on Venezuela earlier this month in exchange for the opposition and government agreeing to allow foreign observers oversee the country's elections the next year. In the medium to long term, the US move creates the prospect of increase in production and recovery, provided that the political accords are upheld, according to S&P Global Commodity Insights.

Prior to the installation of US sanctions, India used to be a consistent importer of Venezuelan crude oil grades, the report said. Between 2017 and 2019, India bought over 300,000 barrels per day of Venezuelan crude grades before to the imposition of sanctions, with private refiners being the main purchasers. According to S&P Global statistics, these imports made up between 5% and 7% of all crude oil imports into India at that time.

Merey-16 was the main Venezuelan crude grade that India bought most of those years. This grade has an average API gravity of around 16 and is quite heavy, sour, and contains a lot of acid. Because Merey-16 is a tough material, processing it needed sophisticated procedures and operating conditions. As a result, S&P Global claims that Indian refiners were able to purchase Venezuelan oil at significant savings when compared to petroleum from other areas.

Refiners in India could think about importing cheap barrels from Venezuela. Lately, coker complexes have been running at maximum or even overcapacity, mostly because of the growing processing of low-cost, high-sulfur Russian Urals crude. There isn't much space for Venezuelan grades because of this," Ritolia remarked.

He said, "Indian refiners may need to replace crude from their existing sources, which might include Middle Eastern, Latin American, and US crudes, if the refining economics would favor Venezuelan crude in the future."

Ha Nguyen, S&P Global Commodity Insights' Executive Director of Global Crude Oil Markets, said that the US Department of the Treasury loosened trade, financial, and oil sanctions on Venezuela on October 18. For a period of six months, the Treasury has granted a "general license" that allows previously forbidden actions. Should the Maduro administration fulfill its electoral and political obligations, this license may be extended. Now, US oil firms are permitted to investigate and promote investments in Venezuela."

The fact that US oil refiners may now purchase oil straight from PDVSA, Venezuela's state-owned oil corporation, is more immediately significant. This may result in more Venezuelan oil being sent to the US for financial purposes rather than China, where it is used to settle debt. In the US Gulf Coast market, Venezuelan barrels will face competition from other heavy oil grades from Latin America and Canada."

According to statistics from the Petroleum Planning and Analysis Cell, India's oil consumption increased 5.6% year over year to 171.34 million tons, or 4.9 million bpd, between January and September. The demand for gasoline and diesel increased by 7.4% and 6.5% year over year during that time, respectively. The year-over-year rise in demand for jet fuel was 20.5%, but the demand for naphtha climbed by 3.7% from January to September.

In the last several years, India has expanded the sources of its oil imports. However, as a result of western limitations, Russia has become India's primary crude supplier as of February 2022. Russia sold oil to India at a discount. Just 2% of India's total oil imports in FY22 came from Russia; in FY23, it made up about 25% of the 235.52 million tons of crude oil that India imported. The US, the UAE, Saudi Arabia, Iraq, and the US are among India's other major suppliers.