Indian refiners will buy less oil from Saudi Arabia next month and purchase supplies outside of the Middle East as part of a diversification drive amid weakening domestic fuel demand on the resurgence of COVID-19.

State-owned Indian Oil Corporation (IOC) and three other refiners have sought just 65 per cent of the monthly average of about 15 million barrels from Saudi Arabia in May, according to reports. The move comes as tensions rise between India and Saudi Arabia over tngdom’s hawkish stance on boosting oil production to cool prices.

With Saudi Arabia ignoring India’s requests to lift output curbs, the Indian government last month asked state refiners to look for sources outside of the Middle East. IOC and other state refiners are looking to buy more oil from the spot or current market, rather than rely on term or fixed quantity contracts with Saudi and other OPEC nations.

In recent weeks, Indian refineries have bought newer crudes from countries like Guyana and Norway. To reduce India’s dependence on the Middle East for oil, the US is also being tapped for increased buying. IOC has floated a spot tender seeking crude from West Africa, the US and Canada.

Crude oil imports from OPEC countries decreased to 74.4 per cent of total imports during April 2020 to February 2021, as compared to 79.6 per cent in the same period of the previous year. India, which imports 85 per cent of its oil needs, in February saw record petrol and diesel prices, putting an extra burden on the pandemic-hit economy.

Oil Minister Dharmendra Pradhan repeatedly called for OPEC and its allies, commonly known as OPEC+, to pump more crude to stop prices from rising too high. But Saudi Arabia did not yield to his demands and instead asked New Delhi to use cheaper oil it had bought and stored when oil prices had plummeted a year back.

Oil purchases from Saudi dropped in January and February this year while US imports more than doubled, with the US overtaking Saudi as India’s second-largest supplier in February. Iraq continues to be the top supplier.

India, the world’s third-largest consumer of oil, hopes to use the might of its market to change the terms of engagement with big suppliers. The government has asked state refiners to review contracts they enter into for buying crude oil from the Middle East nation and negotiate more favourable terms.

To begin with, Indian refiners will look to reduce the quantity they buy through term contracts and instead buy more from the spot or current market. Buying from the spot market would ensure that India can take advantage of any fall in prices on any day and book quantities. Indian refiners have raised spot purchases from 20 per cent a decade back to 30-35 per cent of the total oil bought now. Due to its geographical proximity, the Middle East can, however, supply cargoes in less time and at low freight rates.

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