India shuns Gulf producers, diverts oil to strategic reserves

A view of the Guru Gobind Singh oil refinery in the northern Indian state of Punjab. (REUTERS file photo)
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Updated 15 April 2020

India shuns Gulf producers, diverts oil to strategic reserves

  • Indian fuel demand has collapsed following a nationwide lockdown to prevent the spread of COVID-19

India will divert 19 million barrels of Gulf oil from state-run firms to strategic petroleum reserves (SPRs), skipping direct purchases from producers to help refiners get rid of extra oil as their storage is full, three sources said.

India’s decision to divert cargoes meant for state refiners will not soak up excess oil from the market following the demand collapse caused by the coronavirus pandemic, but it will help local companies to avoid demurrage charges at a time of expensive freight.

It also secures purchases at a low price.

The Indian Strategic Petroleum Reserves Ltd. (ISPRL), a company charged with building SPRs, had planned to buy oil directly from Saudi Arabia and the UAE to fill the caverns, sources said last month.

Since then situation has changed as Indian fuel demand has collapsed following a nationwide lockdown to stem the spread of the coronavirus, leading some refiners to declare force majeure on crude purchases.

Force majeure exonerates parties from contractual obligations because of circumstances beyond their control.

“It is good for ISPRL as it is getting crude at the April official selling prices of Saudi and U.A.E,” one source said on condition of anonymity.

Global oil prices rose to around $32 a barrel on Wednesday, continuing a recovery from 18-year lows hit last week, ahead of a meeting on Thursday of the Organization of the Petroleum Countries and other producers on output cuts to prop up the market.

India’s state refiners have resorted to exporting refined products to avoid full closure of their plants after local fuel demand collapsed.

The world’s third biggest oil importer, India has built SPRs at three locations in southern India to store about 37 million barrels of oil or about 5 million tons to protect against supply disruption.

Another source said that Indian refiners have until the third week of May to supply oil as the unloading of Very Large Crude Carriers (VLCCs) at Mangalore port stops then because of monsoon rains.

Hindustan Petroleum will supply 400,000 barrels of Iraqi oil to fill the nearly 7.5-million-barrels Vizag storage in the southern state of Andhra Pradesh, the sources said. India has already stored Iraqi oil in Vizag cavern.

The UAE’s Abu Dhabi National Oil Co. (ADNOC) has leased half of the nearly 11-million-barrel Mangalore storage, while the ISPRL has bought 4 million barrels of Saudi oil for 18.5-million-barrel Padur storage. The facilities are in Karnataka state.

Indian Oil Corp. will divert 2 million barrels of Saudi oil and 5.7 million barrels of ADNOC oil, they said.

Mangalore Refinery and Petrochemicals Ltd. will move its 6 million barrels and Bharat Petroleum Corp. will provide 4.6 million barrels of Saudi oil for the caverns, the sources said.

The four state refiners did not respond to Reuters emails seeking comments. ISPRL’s managing director H.P.S. Ahuja declined to comment.

ISPRL has signed memorandum of understandings with ADNOC to lease half of Padur facility and with Saudi Aramco for a quarter.

Pending final agreements with ADNOC and Saudi Aramco, India decided to help state refiners, one of the sources said.

“It is cheaper to divert the cargoes rather than keeping them floating . . . it is a win-win situation for all,” this source said. 


‘The stock market, stupid’ — Trump’s claim is looking hollow 

Updated 29 October 2020

‘The stock market, stupid’ — Trump’s claim is looking hollow 

  • The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency
  • The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost

Before the US election of 1992, candidate Bill Clinton summed up what he saw as the reason he would become president: “It’s the economy, stupid.” He was proved right as voters disowned the economic policies of President George H.W. Bush in their droves to elect Clinton. 

Until the COVID-19 pandemic began to ravage the US economy in March, President Donald Trump would have been able to make the same claim. For the four years of his presidency, the US economy had continued the progress initiated by his predecessor to recover from the 2009 global financial crisis.

By most measures — growth, employment, inflation — the Trump years had been good, and those on the top of the pile had even more reason to be grateful thanks to the big tax cuts he had made a flagship policy.

The pandemic changed all that in the space of a few weeks as lockdown measures shocked the economy. Jobless claims soared to all-time records, bankruptcies and closures affected large swathes of American business, and gross domestic product collapsed. The International Monetary Fund forecasts that the American economy will shrink by 4.3 percent this year.

But Trump could still claim instead that “it’s the stock market, stupid” as a reason he could be re-elected. Mainly because of the trillions of dollars injected into the economy in the form of fiscal stimulus, US share indices had swum against the economic tide.

The S&P 500 index hit an all-time high in September, allowing Trump to boast that under his administration, investors and the millions of people whose livelihoods depended on the financial industry had never had it so good.

Now, it looks as though even that final claim is looking more fragile. For the past couple of days, US and European stock markets have gone into reverse as investors took fright at the rising number of COVID-19 cases and the re-imposition of economic lockdowns in many countries.

Trump might argue, with a little justification, that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. Certainly the contender, by definition, is something of an unknown quantity in terms of economic policy.

He is also known to favor some policies — such as tighter regulation on environmental sectors, more spending on health care, and higher taxes for federal services and projects — that have traditionally been regarded as contrary to the philosophy of “free market” America.

In particular, the energy industry is worried about possible restrictions on shale oil and gas production that Biden and his “green” team are believed to favor. However, it should be pointed out that the Democratic candidate has specifically said he will not ban shale fracking, as some environmentalists want.

In any interesting side-story, the state of Texas — one of the biggest in terms of electoral college votes — would seem to have more to lose than any other if the energy scare stories about Biden were true. Yet the contest there between Democrats and Republicans is the closest it has been for decades, according to opinion polls.

The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency and a sign of his deal-doing prowess. If even this claim is denied to him in the final week of campaigning, it would make the uphill battle against the polls even more difficult.

There is a chance that Big Tech might offer some relief. The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost, given that they were the ones largely responsible for the big market gains earlier in the year.

But for Trump, any such respite might be too little, too late. It looks as though Wall Street and Main Street are finally catching up in their gloom, and there is nothing the president can do about it.