Industry sources told “This price differential reversal is a short-term phenomenon. WTI pricing is dependent on the US economy and demand.” Also, WTI is a land locked crude and the weakness is only in the prompt month closer to contract expiry. The contracts two and three months down the line will again continue to show value closer to Brent, they said.
Industry sources also point out that the Indian refiners normally source their low sulphur crude from East African nations and West Asia. The low sulphur crudes they buy from countries such as Nigeria are linked to Brent crude. Also, buying decisions are made almost 60 days in advance and difficult to replace cargoes at short notice.
Thus, the composition of the Indian crude basket is based on a combination of sour and sweet crudes, including indigenous crude. It represents the published price of average of Oman/Dubai crude oil for sour grade and Brent (dated) for sweet grade.
But this basket is not reflective of the actual price at which the domestic refineries buy crude.
“We work out the Indian basket on the average to capture the price trend of the crude purchased. This also helps us in working out the under recoveries or over recoveries figures on retail selling price of petroleum products,” sources added.
“Due to commercial reasons, no company will disclose the actual price,” they said.
Crude is not sourced from other nations which are linked to WTI pricing because it is not economically viable, particularly because of transportation and loading costs, the source said, adding that the crude mix used also depends on the refinery configurations.
“We have to see that we get the cheapest possible product mix which gives good yields and improve the gross refinery margins,” sources added.
On why the price basket of public sector refiners is higher than of the private players they said, “This is mainly because of refinery configuration. RIL’s refinery can process wide variety of crude, including the tough grades of crude.
“With wider the basket to choose from better will be the ability to minimise cost of purchase by being more opportunistic.”
New Delhi, Jan. 20 BL
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