For the first time in history, Iraq took over as the top oil supplier for India. This is largely due to the heavily discounted heavy crude that refiners in India have been consuming to make bitumen to build roads.
Thomson Reuters Supply Chain & Commodities Research has cited Iraqi oil accounting for one fifth of Indian imports during the second quarter, up from 16 percent a year ago.
However, government owned Saudi Armco will face further pressure and with more reason to slash crude prices to regain market share. The Saudi market share in India lost 18% from a fifth share last year, making it the first ever quarter that Saudi Arabia has not prominently dominated the quarter.
The Saudis losing their dominance in the Indian market is a result of Saudi Armco raising crude prices over the last four months and some believed was an attempt to end an aggressively expansion of market share.
Facing inroads into its market shares, Saudi Aramco this month slashed the August official selling price (OSP) of its benchmark light crude grade to Asia by the most in nine months but analysts warned it may need to make deeper cuts. Aramco faces further threats as they have lost foothold in China and Russia, which could worsen after Iran’s campaign to export as much oil as possible after sanctions were lifted.
Timing could not be worse for Saudi Aramco as it prepares to list Saudi Armco and other assets to raise billions of dollars to make up for the shortfall in the global oil slump.
The drop in market share comes as the Kingdom prepares to list Saudi Aramco and other assets to raise tens of billions of dollars to help bridge a budget shortfall due to weak oil prices.
In recent months, Iraq’s new Basra Heavy grade has been in demand for both its competitive price and versatility. In the case of India, Prime Minister Narendra Modi’s goal to improve infrastructure has created a demand for Basra Heavy grade as it is used to make bitumen for road construction. For now, India plans to build 25 miles of roads every day this fiscal year and will steadily generate demand for Basra heavy grade, yet the monsoon season will likely temporarily affect the demand.
India’s imports from Iraq rose 34 percent from 874,000 barrels per day to 768,000 barrels per day. However, logistical problems and the monsoon season will temporarily affect the demand for Iraqi oil according to officials at Indian refineries.