The steep fall in domestic energy demand driven by the COVID-19 pandemic has impacted India’s oil refining sector amid an oil price war and a severely stressed global petro-order.
Reuters had earlier reported that Indian Oil Corporation (IOC), the refining heavyweight, and Mangalore Refineries and Petrochemicals Ltd. (MRPL), have served force majeure notices to their Middle Eastern crude suppliers, citing the Coronavirus epidemic — a Black Swan event. Force majeure notices are built into contracts, which relieve companies from making payments due to unforeseen calamities such as wars and natural disasters.
According to Reuters, IOC, which owns about a third of the country’s 5 million barrels per day (bpd) refining capacity, has sent a force majeure notice to most Middle Eastern suppliers. MRPL has already shuttered a third of its 300,000 bpd refining capacity.
Problem of plenty
Energy demand in India has plummeted as lockdowns, enforced to contain the spread of COVID-19 infections, have derailed the economy — they have included grounding of flights, and brought vehicular transportation to a standstill.
The stress in India’s refining sector follows extreme turbulence in the global energy eco-system. On Monday, U.S. oil briefly plummeted to less than $20 a barrel, breaching a major psychological marker. Apart from the meltdown in demand, the oil glut in the market is unveiling another major problem — that of storing excess crude. Freight rates of supertankers, which can store and transport large volumes of oil, are climbing as traders scramble to secure them for storage.
The problem of plenty is also driven by a savage price war between Saudi Arabia and Russia. Earlier this month, Saudi Arabia, the leader of the oil cartel Organisation of Petroleum Exporting Countries (OPEC)