{"id":14666,"date":"2021-04-05T00:00:00","date_gmt":"2021-04-05T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/05-04-2021\/reviewing-oil-import-contracts\/"},"modified":"2021-04-05T00:00:00","modified_gmt":"2021-04-05T00:00:00","slug":"reviewing-oil-import-contracts","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/05-04-2021\/reviewing-oil-import-contracts","title":{"rendered":"Reviewing Oil Import Contracts"},"content":{"rendered":"<p><strong>In News<\/strong><\/p>\n<p>Recently, the Government of India has <strong>asked the refiners to review their contracts<\/strong> for buying <strong>crude oil from Saudi Arabia<\/strong> and <strong>negotiate <\/strong>more favourable terms.<\/p>\n<ul>\n<li>India, the <strong>world\u2019s third-largest consumer of oil<\/strong>, hopes to use the might of its market to change the terms of engagement with big suppliers.<\/li>\n<\/ul>\n<p><strong>Background<\/strong><\/p>\n<ul>\n<li>Oil producers cartel <strong>Organization of the Petroleum Exporting Countries<\/strong> (OPEC) <strong>output cut to boost oil prices<\/strong> has been the main cause of tensions between India and Saudi Arabia.<\/li>\n<li>When oil prices started to rise in February,<strong> India wanted Saudi Arabia to relax output controls<\/strong> however, it was <strong>not taken note of<\/strong>.<\/li>\n<li>Saudi and its allies ignored India\u2019s call to increase supply, prompting Indian refiners to discuss the possibility of taking less oil.<\/li>\n<\/ul>\n<p><strong>Concerns<\/strong><\/p>\n<ul>\n<li>India<strong> imports 85% of its oil needs<\/strong> and is often <strong>vulnerable to global supply and price shocks<\/strong>.\n<ul>\n<li>Traditionally, Saudi Arabia and other OPEC producers have been India\u2019s main suppliers of crude oil, however, their terms have often been loaded against the buyer.<\/li>\n<li>The <strong>Middle East accounts for 60% of all oil bought by India<\/strong> while <strong>Latin America and Africa <\/strong>are the other big supplier blocks.<\/li>\n<\/ul>\n<\/li>\n<li>India buys<strong> two-thirds of its purchases on term or fixed annual contracts<\/strong>, which provide<strong> assured supplies <\/strong>of the contracted quantity <strong>but the pricing and other terms favour only the supplier<\/strong>.<\/li>\n<li>While buyers have an obligation to lift all of the contracted quantity, <strong>producers have the option to reduce supplies<\/strong> in case OPEC decides to <strong>keep production artificially lower to boost prices<\/strong>.<\/li>\n<li>Also, the buyer has to <strong>indicate at least six weeks in advance<\/strong> of their <strong>intention to lift quantity out of the annual term contract <\/strong>in any month and <strong>has to pay an average official price<\/strong> announced by the producer.<\/li>\n<li>Saudi and other <strong>OPEC suppliers insist on selling at their official selling price only<\/strong>.\n<ul>\n<li>In an ideal market, the <strong>pricing should be of the day when the loading is taking place<\/strong>. That way the buyer gets the advantage of any drop in international oil rates but that is not the case.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Latest Directives<\/strong><\/p>\n<ul>\n<li>In order to <strong>break OPEC\u2019s dictating pricing and contractual terms<\/strong> and also for <strong>diversification of the supply base<\/strong>, the government has asked the refiners to look for more options and review contracts carefully.<\/li>\n<li>The government has told <strong>Indian Oil Corporation<\/strong> (IOC), <strong>Bharat Petroleum Corporation Limited<\/strong> (BPCL) and <strong>Hindustan Petroleum Corporation Limited<\/strong> (HPCL) to look for oil supplies from<strong> outside the Middle East region<\/strong> and <strong>use collective bargaining power<\/strong> to get favourable terms.<\/li>\n<li>Indian refiners will<strong> look to reduce the quantity<\/strong> they buy <strong>through term contracts <\/strong>and instead<strong> buy more from the spot or current market<\/strong>.\n<ul>\n<li>Buying from the spot market would ensure that India can take <strong>advantage of any fall in prices<\/strong> on any day and book quantities.<\/li>\n<li>Indian refiners have <strong>raised spot purchases from 20% a decade back to 30-35%<\/strong> of the total oil bought now.<\/li>\n<\/ul>\n<\/li>\n<li>India will <strong>buy oil when it gets favourable terms<\/strong>, choice of time of supply, flexibility of price and quantity (ability to reduce or increase) and surety of supplies.<\/li>\n<li><strong>Purchase contracts with Saudi permit refiners to vary volumes by month<\/strong> but the overall annual commitment must be honoured.<\/li>\n<li>Indian refires should <strong>explore more options<\/strong> in other markets like Latin America and Africa.\n<ul>\n<li>In recent months, India has bought more<strong> oil from the US<\/strong> and from <strong>newer sources such as Guyana<\/strong>, which has a large Indian diaspora.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table border=\"1\" cellspacing=\"0\" style=\"width:735px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; width:468.0pt\">\n<p><strong>Organization of the Petroleum Exporting Countries (OPEC)<\/strong><\/p>\n<ul>\n<li>It is a <strong>permanent<\/strong> and <strong>intergovernmental organization<\/strong>.<\/li>\n<li>It was created at the <strong>Baghdad Conference<\/strong> in <strong>September 1960<\/strong>, by <strong>Iran, Iraq, Kuwait, Saudi Arabia and Venezuela<\/strong>.<\/li>\n<li><strong>Members who joined later:<\/strong> Libya, United Arab Emirates, Algeria, Nigeria, Angola, Gabon, Equatorial Guinea and Congo.<\/li>\n<li><strong>Objective<\/strong>\n<ul>\n<li>To coordinate and unify petroleum policies among member countries.<\/li>\n<li>To secure fair and stable prices for petroleum producers.<\/li>\n<li>To ensure an efficient, economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the industry.<\/li>\n<\/ul>\n<\/li>\n<li><strong>OPEC+<\/strong> is a <strong>loosely affiliated entity<\/strong> consisting of the 13 OPEC members and <strong>10 of the world&#8217;s major non-OPEC oil-exporting nations<\/strong>.\n<ul>\n<li>The <strong>Declaration of Cooperation<\/strong> (DoC) constitutes an unprecedented milestone in the history of OPEC as under it, for the first time ever, <strong>OPEC countries coordinated with 11 non-OPEC oil producing countries<\/strong> (<strong>now 10<\/strong> as Equatorial Guinea became a member).<\/li>\n<li>These <strong>10 countries are:<\/strong> Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Source: <a href=\"https:\/\/www.thehindu.com\/business\/india-asks-state-refiners-to-review-oil-import-contracts-with-saudi\/article34223463.ece\" target=\"_blank\" rel=\"noopener\">TH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News Recently, the Government of India has asked the refiners to review their contracts for buying crude oil from Saudi Arabia and negotiate more favourable terms. India, the world\u2019s third-largest consumer of oil, hopes to use the might of its market to change the terms of engagement with big suppliers. Background Oil producers cartel [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":14667,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[56,57,30,34,90,89],"class_list":["post-14666","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-agreements-involving-india-or-affecting-indias-interests","tag-effect-of-policies-politics-of-developed-developing-countries-on-indias-interests","tag-gs-2","tag-india-foreign-relations","tag-their-structure-mandate","tag-various-agencies-fora"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/3303738current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/14666","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=14666"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/14666\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/14667"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=14666"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=14666"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=14666"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}