India is more likely to cut the Saudi Arabian oil purchase in May because of weaker demand due to an increase in Covid-19 cases. India’s state refiners are considering that there will be a decrease in the purchasing of barrels from Saudi Arabia in May after OPEC ignored the call for higher supplies to calm foreign crude oil prices.
However, the final call is still to be taken as the move might risk the Saudi retaliation and decade-old ties between the two countries. The extended output cut by Saudi and its associates have raised the price by one-third this year which is above $68 per barrel. Also, it has led to a hike in Indian fuel price.
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What India Has to Say?
Few Indian petroleum companies like HPCL, BPCL, Indian Oil Corporation, and MRPL have explained the options of dropping Saudi oil purchase in the month of May. Additionally, regular maintenance shutdowns and weaker demand because of Covid-19 cases will also play a vital role in the lower purchase of Saudi Arabian oil.
Indian refiners work on the annual purchase deals with Saudi Arabia and should share the monthly loading plans before a month. This term deal is done on the best endeavour basis and no financial penalty is there for not honouring the deal, but both Indian refiners and Saudi Arabia are honoured their side of the deals for a decade.
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India is the 3rd largest importer in the world has particularly piqued after the Saudi oil minister suggested that the country is a dip into its cheap oil reserves to fight the high prices while ignoring New Delhi’s call.
“How Saudi Arabia will react to it is quite difficult to guess. They might make the next deal difficult or may cut Saudi oil supplies to India in future at a difficult time”. However, replacing oil suppliers will not benefit the price of oil as refiners will have to pay the market price.