Oil-related Developments - March 2018

1. Oil prices: Oil prices rose on 26 February, hitting three-weeks high, supported by strong U.S. demand and comments from Saudi Arabia that it would continue to curb production in line with OPEC-led efforts. Brent crude rose 19 cents to settle at $67.50 a barrel. U.S. West Texas Intermediate futures rose 36 cents to settle at $63.91 a barrel, after hitting a 20-day high of $64.24.

Prices were supported by Saudi Energy Minister Khalid al-Falih, who said on 24 February that his country’s January-March crude production would be well below output caps, with exports averaging less than 7 million barrels per day. He said Saudi Arabia hoped OPEC and its allies would be able to relax production cuts next year and create a permanent framework to stabilize oil markets after the current agreement on supply cuts ends this year.

2. India-Saudi Arabia energy ties: During a two-day visit to India, Saudi energy minister Khalid al Falih said on 24 February that Saudi Arabia was not bothered by "short-term fluctuations" in its share of crude oil supplies to India, the world's third largest importer, and was looking to take on a new joint venture refinery project. "We've seen refiners react to buy opportunities that they get from time to time. But, at the end of the day we know from eight decades of supplying the world with energy that our partners will find the value in long-term stability," Falih told reporters in New Delhi.

India's top crude oil supplier for several years, Saudi Arabia lost its top spot last year to Iraq, and has seen its export numbers fall. India is set to import 36.5 million tonnes from the Kingdom in the current financial year to March, down 7.6% from 39.5 million tonnes last year. This is from total imports of 214 million tonnes, meeting 80% of its crude oil needs.

Falih was in India to discuss increased Saudi involvement in the Indian energy sector. This includes an invitation by the petroleum ministry to participate in its Strategic Petroleum Reserve programme. India has become Saudi Arabia's priority destination for investment, with Saudi Aramco CEO Amin Nasser saying in October that it was keen to play a bigger role as a crude and LPG supplier to feed an anticipated rise in demand. The company forecasts Indian crude oil demand could nearly double to 10 million b/d by 2040, while its gas demand would also more than triple.

Aramco also hopes to take part in a number of major refining projects with Indian oil companies. This includes plans by Indian Oil Corp., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd. to build a new 60 million mt/year (1.2 million b/d) grassroots refinery in Maharashtra.

"The more the better," Falih said when asked how much stake Aramco was looking to acquire in the project. "But certainly we are not constrained by capital, and we are not constrained by feedstock, and we are not constrained by size", he said.

The refinery is expected to start up around 2020-21. It would be Aramco's first foray into India's refining sector. It already has joint ventures in the US, South Korea, Japan, China and Indonesia. It also has plans for further projects in China and Malaysia, and wants to eventually raise its total downstream capacity to 8 million-10 million b/d from around 5.4 million b/d currently.

Falih also said Aramco was "in principle" interested in entering India's fuel retail business, but would not provide details of any discussions on the matter. "I will leave that to Aramco downstream organizations to look at," he said.


March 3, 2018

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About the Author

Ambassador Talmiz Ahmed

Former Ambassador of India to Saudia Arabia, Oman and UAE, monitors developments in the West Asian region.  

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.