Clyde Russell, Reuters
The market narrative consuming crude oil markets currently is the interplay between supply cuts by OPEC and its allies and rising U.S. shale output with a side helping of Chinese imports driving demand.
While there are solid reasons for industry participants to focus on these dynamics, there is also the risk of missing out on other factors that help shape the market.
Such a factor is India, which has long flown below the radar of the crude oil market, despite becoming the second-biggest importer in the fast-growing Asian market behind China, and the third-biggest in the world after the United States.
India is also a market where there is virtually no direct influence being exerted by U.S. shale oil as the South Asian nation hardly imports any crude from the United States. It also imports a relatively small amount from Russia, the main ally in the agreement between OPEC and other producers to limit output to drain excess global inventories, thereby boosting crude prices.
But what makes India important is that it’s a major importer of Middle Eastern crudes and one of the fastest-growing demand centers in the world. And there are currently some worrying trends for Middle Eastern exporters to India, especially for the region’s top shipper, Saudi Arabia.
The International Energy Agency (IEA) put India’s crude oil demand at 4.68 million barrels per day (MMbbl/d) in 2017 in its report released last month and estimated that this year will see demand rise to 4.98 MMbbl/d, an increase of 6.4%.
The IEA expects total world oil demand to increase by 1.4 MMbbl/d, which makes India’s expected growth of some 300,000 bbl/d the most significant source of growth for crude producers outside of China’s expected lift in demand of about 380,000 bbl/d.
India Looks Beyond Middle East
India has traditionally bought the bulk of its crude oil from the Middle East, which makes sense given the geographic proximity and the decision of India’s refiners to focus on processing heavier grades through complex plants in order to maximize the value of fuels produced.
However, despite the overall growth in India’s crude demand in 2017, the volume of imports from the Middle East dropped by 0.5% to about 2.75 MMbbl/d, according to data obtained from sources and compiled by Thomson Reuters Oil Research and Forecasts.
Saudi Arabia lost its status as India’s biggest oil supplier, with imports from the kingdom dropping 8.9% to about 747,900 bbl/d, the data showed.
Other losers from the Middle East included Iran, with a 0.5% drop to 470,500 bbl/d, and the United Arab Emirates with a 16.5% slump to 288,500 bbl/d.
The region’s winner in exporting to India was Iraq, which increased 12.2% to 885,900 bbl/d, most likely as a result of Baghdad’s willingness to offer deeper discounts on its heavier grades of crude compared to similar grades from other exporters.
If the Middle East overall was surrendering market share in India, the main gainers were two Latin American exporters, with Brazil’s shipments jumping 53% to 94,700 bbl/d and those from Mexico by 15.8% to 155,300 bbl/d.
Among smaller suppliers to India, there were some impressive gains from countries such as Egypt, which was up 23.8% to 45,200 bbl/d, Sudan with a gain of 1,157% to 21,900 bbl/d, and Algeria, which rose 125% to 47,700 bbl/d.
While many of these increases were off very small volumes, they have the potential to become more important in coming years.
If Brazil and Mexico can compete in India, despite a sea voyage of at least four times the distance when compared to cargoes from the Persian Gulf, that should be a worry for Middle East producers.
India’s refineries have shown they can be quite flexible in the crude slates they process, and it appears that the output cuts instituted by OPEC and its allies are encouraging more diverse sources of supply.
The risk for OPEC and its allies is that this sort of market share is hard to recover once the self-imposed production cuts are lifted.
And as India shows, the battle is far more than just a simple OPEC and allies versus U.S. shale producers.
The company also said it expects to generate substantial free cash flow in 2018, allowing it to initiate a dividend in the first-quarter of 2019.
Ace Gathering Holdings LLC said March 6 it has completed its acquisition of Recoil Energy Systems LLC, a provider of crude oil reclamation services.
Reduced risk of well-to-well interference, optimized rock stimulation and maximized efficiency and utilization of surface equipment and crews were cited as benefits.