Can coming together of two biggest consumers of crude oil, India and China, protect their markets from ‘super spikes’ in prices due to geopolitical reasons in the producing countries? Those closely tracking the industry believe the answer is yes and no.

“Today, it is a buyers’ market. So, one cannot rule out their influence on vulnerable oil prices,” said an oil trader, but is also quick to point out that “If they really want to come together on oil, both will need to jointly work on political stability with boots on the ground in the Middle East.” A task not so easy as geopolitics is beyond anyone’s control.

Asian premium

At the recently concluded 16th International Energy Forum here, Minister of Petroleum and Natural Gas Dharmendra Pradhan had announced that India and China have decided to work together and that both were on the same page as far as ‘Asia Premium’ — an additional cost which buyers in Asia have to pay for buying crude oil. The Chairman of Indian Oil Corporation and the chief of CNPC will be the focal points for this co-operation.

Stating that “They (India and China) will need to actively collaborate to provide stability in the region,” Sunjoy Joshi, Chairman, Observer Research Foundation (ORF), said: “As core markets move eastward, the logic for the Asian premium disappears, provided Asian markets can start functioning as proper markets unfettered by their governments.”

Former Indian Oil Corporation (IndianOil) Chairman RS Butola believes that if the two combine forces and given the fact that it is a buyers’ market today, “they can definitely influence the prices”.

Indian refiners sourced crude oil at $69.44 a barrel on April 12, higher than the price of $68.93 a barrel on April 11 and $67.59 a barrel on April 10. The spike has been seen in the last three days due to geopolitical reasons and not fundamentals. Besides, the Syrian situation will also have some implications on the price, traders believe.

Most industry analysts feel that locally also China has well integrated its energy basket, while India is still doing it. But better late than never, as the saying goes. “At least, we are playing around with our energy mix and the sourcing of the crude oil is not just restricted to OPEC countries,” said an industry tracker.

Major suppliers to India today are Iraq, Saudi Arabia, Venezuela, Nigeria, the UAE, Iran, Kuwait and Mexico. Marking its entry into India’s energy basket is the US as well.

Agreeing that Indian refiners are heavily dependent on imports and pricing does play a role, Sanjiv Singh, Chairman IndianOil, who will be the key player in co-operation with China, said: “To start with, this will be advantageous for both of us. But, we have to ensure that the relationship is not at the cost of Indian industry.”

On the issue of Asian premium, Singh said: “It is understood that producers in Middle East do have a different pricing mechanism for different geographies, and with the availability of US crude in the global market, the scenario is likely to change.”

“We have been raising the issue of Asian premium at various OPEC meetings as well and explaining that the Indian market is extremely price-sensitive to petroleum products, which indirectly may impact industrial growth also, if the prices remain too high too long,” Singh pointed out.

He, however, believes that coming together of large consumers will influence the global crude trade.

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