NEW DELHI: Downstream oil companies are bracing for a hit on their margins but do not see much chance of major supply disruption after crude spiked 9% on Friday following the breakout of military conflict between Israel and Iran.
Benchmark Brent crude jumped to $78.50/barrel but settled at $75.55, or $6.19 higher than the previous close, marking the widest intra-day movement since Russia’s February 24, 2022 invasion of Ukraine when the price had hit $105.
Oil minister Hardeep Puri assured “adequate energy supplies for the coming months” after reviewing the situation with petroleum secretary Pankaj Jain and heads of state-run refining and fuel retailing companies, which meet 90% of the domestic fuel needs.
India’s energy strategy is shaped by successfully navigating the trilemma of energy availability, affordability and sustainability under the dynamic leadership of PM Narendra Modi, he said on X after the meeting.
India’s oil consumption is pegged at 4.5-5 million barrels per day. The country has an emergency reserve of 5 million tonnes, or almost 37 million barrels. In addition, oil companies store 40-45 days of crude, while large quantities remain seaborne in transit. Refiners also store fuel at their plants and depots across the country.
But the country also depends on imports to meet over 80% of its oil and 50% gas consumption. Half of this comes from the Gulf through the Hormuz Strait, the chokepoint through which a fifth of global seaborne oil trade goes through.
“India doesn’t buy any oil from Iran. So there’s no worry on that count. As far as blocking Hormuz Strait is concerned, it is extremely unlikely. It has never happened before, even during the earlier wars in the region. Blocking Hormuz will draw in the others in the region as outward cargos of oil and in-bound refined product shipments will stop. Iran itself will suffer,” a senior executive of an oil company said on condition of anonymity.
A statement from the Iranian government said no damage was caused to National Iranian Oil Refining and Distribution Company’s refineries and fuel depots, which continue to function normally.
The real worry, an executive of another company said, is a reduction in profitability. “We are sure to end up taking a hit on profitability as under-recoveries return if oil remains elevated for an extended period,” the executive said.