American sanctions on Venezuelan stated-owned oil firm PDVSA may not have a direct impact on India’s import mix, but it sure is a signal of changing geo-political dynamics and its implications on the oil market.
Vandana Hari, Founder and CEO of Vanda Insights, said “on the global supply and demand level, the oil market appears unconcerned about the latest US sanctions against Venezuela, so there has been no “fear premium” in crude prices, which appear set to track global economic sentiment and within that the progress of the US-China trade talks this week.”
According to reports, PDVSA is looking at options to sidestep the sanctions by proposing oil swaps to its crude buyers. “It was also said to be considering asking traders to be intermediaries in supplying crude to the US. It was not clear if any of these arrangements had been put in place,” the January 30 report of Vanda Insights said.
International Brent crude oil futures rose over 2 per cent on Tuesday in reaction. Venezuela is among the world's largest heavy crude oil producers.
But, for India, Venezuela is a relatively smaller supplier of crude in its import mix, with purchases limited to the private refiners — Reliance and Essar, Hari told BusinessLine.
Elaborating, she said, “The logic so far is that as the US has halted nearly 500,000 barrels a day of Venezuelan crude imports, those barrels should be seeking alternative buyers, at discounted prices. However, whether non-US companies dealing with PDVSA and the Venezuelan central bank could come under US sanctions remains a question.”
Mukesh Ambani-led Reliance Industries sources about 200,000-300,000 barrels a day of oil from Venezuela. According to an analyst tracking the company, “Reliance has a mixed portfolio of crude oil imports and while it purchases substantial quantity of crude on contract from Venezuela and Saudi Arabia, it majorly procures from the spot market. The company is closely watching the global developments before working on a strategy.”
The whole situation is likely to benefit West Asia suppliers of heavy crude to India.
Disturbing development
According to Narendra Taneja, an energy expert, “Venezuela has been an important supplier of crude to Indian refiners for years, and often the Latin American country would offer prices that no other country could match.”
While Taneja believes that the political standoff in Caracas is a disturbing development for India, he says: “The Venezuelan crude exports have been on the declining curve for some time now. It is a significant disturbance but not a shock.” “Reduced crude supplies from Venezuela and Iran will be a substantial cause of stress as far as crude prices in 2019 are concerned. The US, Russia and Saudi Arabia will need to pump more oil to maintain market equilibriums,” he added.
Reduce import
Most in the industry feel that it is time for India to work on its crude import policy. Dharmendra Pradhan, Minister for Petroleum & Natural Gas, and his team have been taking various steps for reduction of import dependency that include increasing domestic production, promoting energy efficiency and conservation measures, giving thrust on demand substitution, and capitalising untapped potential in bio-fuels. The government is also looking at promoting alternative fuels/renewables and implementing measures for refinery process improvements.
The Ministry has also allowed the public sector oil marketing companies to formulate policies for import of crude oil in their best commercial interest and in accordance with the extant guidelines of the Central Vigilance Commission, etc.