Refiners prefer the heavy sweet crude supplied by Iran and Venezuela, which helps them produce low-sulphur fuel oil ahead of new shipping emissions norms that kick in January 2020.
What all this means is that as India stops importing cheaper Iranian oil and turns to Saudi Arabia and the U.S., it may find the supply is not as smooth as it was from Iran.
The United States demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers that had allowed Iran's eight biggest customers, a lot of them in Asia, to import limited volumes. Last week, Brent hit a six-month high above $75.
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Crude markets have tightened this year due to supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and beefed up USA sanctions on Iran's oil exports.
China disapproves of the United States sanctions on Iran. "It was only imperative to look for other options", according to a senior executive of an oil marketing company, who spoke on the condition of anonymity.
Tehran has warned that any direct USA efforts to stop its oil exports could lead to the closure of the Strait of Hormuz, the strategic waterway through which about 20 per cent of the world's total oil supplies pass. Iran was also the third-largest supplier of crude oil to India after Saudi Arabia and Iraq.
Fars news agency reported that 70,000 barrels were sold at $60.68 a barrel. Many observers fear this could lead to escalating violence and further disruptions to crude supply.
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And it is not only geographic proximity that matters but also a very favorable price - for instance, India will have a hell of a time finding a similarly cheap source of crude unless Saudi Arabia eases its pricing and production policy.
"With oil producers" cartel OPEC playing havoc with prices, India discussed with China the possibility of forming an "oil buyers club' that can negotiate better terms with sellers as well as getting more U.S. crude oil to cut dominance of the oil block", a tweet from the Petroleum Ministry's Twitter account said in the middle of a year ago, when oil prices were rising ahead of the return of the USA sanctions on Iran's oil industry.
"Availability of crude is not an issue". Traders are looking for a 1.3 million barrel build. However, for Indian refiners, distance is an important factor as this adds to the freight cost.
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