India's softening refinery run rates may whet appetite for oil product imports

India's crude run rates may witness a lean patch in coming months as more refiners plan maintenance, which may prompt state refiners to turn import tenders to plug the supply deficit amid robust domestic demand, analysts and sources told S&P Global Commodity Insights.

"Indian refinery runs have remained pretty robust since the beginning of 2022 as refiners stepped up efforts to capitalize on high cracks. As a result, maintenance schedules have been deferred," said Shreyans Baid, senior oil analyst for South Asia at S&P Global

"Many Indian refineries have now planned their maintenance in the second half of 2022. We expect Indian refinery runs in H2 to be about 10% lower than the first half," Baid added.

India's average run rate for all categories of refineries fell to 96% in August from 100% in July, according to the latest survey from India's petroleum ministry.

Analysts attributed the third consecutive month-on-month decline in run rates to disruption in mobility due to the monsoon season. However, refinery run rates increased year on year in August, as overall demand for oil products rose from 2021, when markets were hit by the second wave of the pandemic.

State refiners recorded a 90% run rate in August, up from 83% a year ago but down from 102% in July. Indian Oil Corp recorded an average run rate of 81% across its nine standalone refineries in August, down from 82% a year ago and 104% in July, Bharat Petroleum Corp. an average run rate of 101%, up from 99% a year ago and 90% in July, and Hindustan Petroleum Corp. 88%, up from 58% a year ago and down from 103% in July.

Private refiners also cut rates

Private refineries recorded an average run rate of 94% in August, compared with 94% a year ago and 99% in July.

Reliance's domestic unit operated at 108% in August, compared with 103% a year ago and 105% in July. The company's export-focused refinery ran at 72% in August, compared with 75% a year ago and 85% in July. Reliance's combined run was 89% in August, compared with 88% a year ago and 95% in July.

Rosneft-owned Nayara ran at 103% in August, compared with 101% a year ago and 102% in July.

Indian refiners processed 19.53 million mt of crude in August, an average of 4.6 million b/d, down 8.8% month on month, according to petroleum ministry data.

"Quick recovery from seasonal lull due to monsoon rains, limited supply due to refinery maintenance and healthy festive demand has even led to a flurry of gasoline import tenders from Indian public sector fuel retailers," Baid said.

A Mumbai-based analyst said India's average refinery run was expected to improve from mid-November, although some sign of improvement could be visible from October, after the monsoon season came to an end in September. However unseasonal rains in October could be a deterrent.

An oil ministry official held similar views, saying that refinery runs would pick up from mid-November after refineries that underwent maintenance shutdowns resumed operations.

Appetite for Russian crudes

"We have no bias for processing crude of any origin, including Russia, as the basic driving strategy for crude sourcing will be a competitive price," said the oil ministry official, adding that ensuring supplies at retail pumps would be the prime consideration of its crude procurement strategy.

India imported close to 950,000 b/d of Russian crude in July, after 970,000 b/d in June, with the share of Russian crudes in its import mix stabilizing at around 18%-20% in last three months. Platts cFlow ship and commodity tracking software from S&P Global estimates the share of Russian crudes was around 20% in August, or close 900,000 b/d.

India imported 17.55 million mt, or an average 4.1 million b/d, of crude oil in August, down 14.6% from the previous month, Petroleum Planning and Analysis Cell data showed.

Russian crudes had been initially replacing long haul crudes, such as West African and North American crudes, but have now started replacing some of the Middle Eastern crudes as well.

Although the Middle East remains the country's largest supplier of crude, its share in the basket has been on a consistent decline since April.