Indian refiners are taking advantage of cheap oil to bulk up its supplies even as every corner of the nation’s onshore storage tanks fill to the brim, according to Oil Minister Dharmendra Pradhan.
State-run and private processors are now holding seven million tons — equivalent to more than 50 million barrels — on-board tankers out at sea, the minister said in a Facebook post. The refiners are doing so amid a collapse in crude prices that saw the world’s top benchmark lose more than 60% of its value this year and U.S. West Texas Intermediate plunge below zero.
India’s use of floating storage comes as all its onshore options run out. The country’s 25 million tons of crude and fuel storage at refineries, pipelines and inland depots are at capacity, partly due to lower demand, said Pradhan. Even the nation’s strategic reserve tanks are full, he added.
Oil has slumped due to collapsing consumption from the coronavirus outbreak and a short-lived price war between Saudi Arabia and Russia that forced other producers to slash prices. The decline in demand has led to a swelling global glut that’s quickly found its way to onshore tanks, leaving everyone from traders to refiners seeking alternatives such as floating storage.
“It is uncommon to see state-owned refiners in India put crude in floating storage, but they seem to have run out of storage options due to the sharp cutback in crude runs like never seen before,” said Senthil Kumaran, an oil markets consultant at Facts Global Energy.
Bharat Petroleum Corp. has six vessels sitting “off the coast” and some of those are very large crude carriers, according to R. Ramachandran, refineries director at the state-owned processor. Consumption is expected to improve this month as factories and construction restart, freight movement increases and summer crops are sowed in north India, he said.
The country’s oil-product demand in April declined about 70% from a year earlier, Pradhan said. Last month, Bloomberg reported that Indian oil tanks were 95% full as refiners hastily dumped fuel into the spot market and slashed processing rates across the country.
India is the world’s third biggest oil consumer and imports more than 80% of its crude, which is typically the biggest expense on its trade bill. While Prime Minister Narendra Modi has extended India’s lockdown until May 17, some industries and agriculture as well as goods transport have been allowed to restart.
Despite the resumption of some activities, restrictions will continue to weigh heavily on oil demand over the next quarter, said FGE’s Kumaran. Refiners will be cautious while planning for July and August crude volumes and may consider cutting back on term supplies, he added.