Cheap heavy oil is accumulating in North and South America while refineries in Asia and Europe are struggling to secure their supplies. This issue, along with a significant increase in transportation costs, has made purchasing this oil difficult for buyers.
Increase in Transportation Costs and Its Impact
The cost of hiring a supertanker to transport oil from the U.S. Gulf Coast to Asia has increased more than fivefold since February. According to sources, this cost reached over $80 million last week, equivalent to about $40 per barrel of oil. At the beginning of the year, this cost was around $10 to $15 million.
Meanwhile, Venezuela's oil exports have increased since the new government came to power, and Canada’s oil production has also reached its highest level. Additionally, the United States has released over 130 million barrels from its strategic oil reserves. This increase in supply, coupled with high transportation costs, has resulted in larger quantities of heavy oil remaining in the Americas.
Impact on Indian Refineries
Indian refineries may capitalize on these changes as they seek cheaper options instead of their usual sources. It is expected that imports of Venezuelan oil to India will reach about 465,000 barrels per day this month, up from 196,000 barrels per day in September. If these shipments arrive on time, this will be the highest level since December 2019.
However, high transportation costs and existing limitations in the capacity of Indian refineries to process heavy oil may restrict these benefits. Many refineries can only process a specific percentage of heavy oil and cannot fully replace all available sources with heavy oil.
Analysts also predict that with rising transportation costs and increasing prices of Russian oil, Indian refineries will show greater inclination towards purchasing Venezuelan heavy oil. In this situation, existing challenges in supply and transportation could significantly impact the purchasing strategies of these refineries.
