India may not be hit as Saudi firm races to restore oil supply
NEW DELHI/MUMBAI: India, the world’s third largest oil consumer, said it is keeping a close watch on the rapidly developing situation with drone strikes on the world’s biggest oil producer, Saudi Arabian Oil Co., or Saudi Aramco,as the Kingdom races to restore oil production after drone strikes disrupted around 5% of global supplies.
The Saudi company on Sunday also assured India there would be no impact on crude supply to the refineries.
Saturday’s strikes by 10 drones at Abqaiq and Khurais oil facilities have disrupted more than half of Saudi Arabia’s oil capacity or 5.7 million barrels per day (mbpd). The Kingdom accounts for about one-tenth of global crude supply of 100mbpd and is the second largest supplier of crude and cooking gas to India.
The US has blamed Iran for the attacks as Tehran-backed Houthi rebels claimed credit for the attacks, ratcheting up tensions in the Persian Gulf. In response, Iran’s foreign ministry described US’s remarks as “blind and fruitless accusations”.
The drone strikes were expected to send oil prices up $5-10 per barrel on Monday and some oil traders have already begun to speculate if prices will cross the $100-mark yet again. “We are keeping a close watch,” said an Indian government official, seeking anonymity.
A sudden increase in global
prices will affect India’s oil import bill and its trade deficit. Every dollar increase in the price of oil raises the import bill by ₹10,700 crore on an annualized basis. India spent $111.9 billion on oil imports in 2018-19.
“Work is underway to restore production and a progress update will be provided in around 48 hours,” Amin H Nasser, Saudi Aramco president and chief executive officer said in a statement.
This comes in the backdrop of the extension of production curbs by the Organization of the Petroleum Exporting Countries and Russia. India is particularly vulnerable as it imports more than 80% of its oil requirements and around 18% of natural gas.
India’s government is concerned about volatility in oil prices and its impact on consumers amid a slowing domestic economy, adverse external headwinds such as the US-China trade war and fears of a global recession.
However, state-run oil marketing companies (OMCs) — Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd — see limited impact on crude supplies, said two OMC executives requesting anonymity.
A senior official from an OMC said Saudi Aramco has said there would be no change in crude supply. “The crude oil grade that will be supplied may differ, though,” the official added. Paris-based International Energy Agency (IEA) said the global markets are well supplied “for now”.
Experts said any impact of the disruption in production at Saudi Aramco will be limited.
“I expect this to be short-lived. Crude oil prices may go up in the immediate term and could have some impact on the retail fuel prices, but with regard to the availability of crude, India should not face any problem as Indian oil companies have a diversified crude procurement strategy,” said K Ravichandran, senior vice-president and group head-corporate ratings, Icra Ltd.
International crude prices peaked at $147 per barrel in July 2009. Oil prices have remained subdued with the West Texas Intermediate and Brent crude futures trading lower at $54.85 and $60.25 per barrel, respectively, on Friday.