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Tankers: New refining capacity in India to trigger crude demand

India is gearing up to be one of the major markets for crude oil demand, together with China. In its latest weekly report, shipbroker Gibson noted that “India, along with China has long been revered as a key driver of world oil demand growth. However, higher crude prices and a weaker rupee have seen domestic fuel prices surge. Now, with sanctions imminent against one of India’s largest suppliers, consumers could see further price rises which may impact on their purchasing power. This begs the question; can the crude market really rely on India to drive demand over the coming years in a higher price environment?”

According to the shipbroker, “since the start of 2018, crude prices have risen over 11%. What has become an already expensive time for Indian refiners to import US$ priced crude has been exacerbated by a simultaneous 13% decline of the Indian Rupee vs the US$. This unwelcome mix has meant in real terms, an almost 30% increase in the price of crude for Indian refiners. The Reserve Bank of India recently estimated that for every $10 increase in a barrel of oil, GDP suffers by 0.15%, potentially cannibalising some the anticipated oil demand growth. Furthermore, crude import reliance is rising as domestic production fails to grow. Quite simply, higher crude prices offer zero upside for the Indian economy. To limit the impact, the Government has sought to protect consumers from rising prices through tax cuts on diesel and gasoline this month and has even asked domestic refiners to sacrifice margins in order to limit price rises”.

Gibson mentioned that “despite higher prices, seaborne arrivals in the first two decades of October are pointing toward a strong gain, with Kpler reporting an average of 308,000 b/d higher crude imports month on month than September (a 5% increase YOY Q3 2017 vs Q3 2018). There have been higher volumes from Nigeria and Latin America, with noticeable arrivals from Venezuela as well as increasing gains from Iraq. Indian crude buying seems strong for now. Imports have also risen from Iran, with September volumes already up 20% YOY, prompting many to ask whether imports from Iran will wind down following the sanctions snapback. Indeed, Oil Minister Dharmendra Pradhan has stated India’s intent to continue lifting Iranian barrels, with Indian refiners reportedly already placing orders to buy 9 million barrels for November. Perhaps this is unsurprising when it is considered that heavily discounted Iranian barrels may help the country manage the effect of higher international crude prices. India has even sought to implement a new payment system to purchase Iranian crude in rupees, in order to circumvent US sanctions”.

According to Gibson “looking further ahead, irrespective of prices, developments in Indian refining capacity are likely to be the main driving force behind the growth in crude import demand. Between 2019-2022, 550,000 b/d of additional refining capacity is due to come online, roughly the same as demand growth projections over the corresponding period. Even if domestic demand does falter, high run rates are likely to keep import volumes high. If unexpectedly the domestic market cannot absorb all the product, then refined product export volumes will have to rise”, the shipbroker concluded.

Meeanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “VLCC Charterers did their best to restrict the fresh cargo flow and initially their efforts prevailed to allow rates to drift off slightly from last week’s numbers. Late week, however, the tide turned as more forward positions hit resistance, which eventually led to a noticeable rebound getting underway, with short haul rates moving to as high as ws 125, with ‘standard’ Far East movements at no less than ws 85 for modern units, and rate ideas to the West moving up through the mid ws 30’s. With a full second half November programme to come, there is now potential for something even more substantial if Charterers don’t control the pace. Suezmaxes gained sharply to the West on news of a 20 tonne crane restriction being imposed by Basrah for November liftings and those compliant units managed to quickly drive rates towards ws 60, with runs to the East also improving to ws 110+ and perhaps higher could be seen into next week too. Aframaxes eased off a little to 80,000mt by ws 135 to Singapore upon lighter interest but there’s a solid feel nonetheless, and any concerted cargo-push would lead rates up again in short order”, the shipbroker said.
Nikos Roussanoglou, Hellenic Shipping News Worldwide.

Published On Monday,October 29th,2018 @ !!!

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