MyValueResearch

Indian Crude Basket

Crude oil, the black Gold, is of paramount importance in economies worldwide. There is hardly a nation that does not seek this indispensable natural resource. It is the major driver of the country’s economy.
There are different types of Crude oil in the global market. Despite different types, India faces a large supply deficit, as domestic Oil production is unlikely to keep pace with demand. India’s rough production is only 0.8 million barrels per day. The Indian basket comprises mainly of two kinds of Crude oil:
1. Oman-Dubai sour grade Crude – 61.4per cent out of total imports
2. Brent dated sweet Crude – 38.6 per cent out of total imports

The difference between the two grades is in the Crude’s Sulphur content. Sweet grade has less than 0.5% sulphur in them, whereas sour Crude has a higher level. Sour Crude oil contains the impurities hydrogen sulfide (H2S) and carbon dioxide, or mercaptans. Countries like Venezuela, Saudi Arabia, Iraq, Kuwait, Iran, Colombia and Mexico are major producers of sour Crude oil. The countries from which India imports Crude oil are Venezuela, Nigeria, Sudan, Iran and Kuwait.

As there is a scarcity of sweet grade of Crude and is more expensive, the basis between sour and sweet Crude has fluctuated wildly.
Sweet grade of Crude has therefore become less and less useful in helping to establish the “correct” pricing for sour grade. This is the main reason why the Nymex has worked for the last three years to establish the Dubai Mercantile Exchange, or DME and Intercontinental Exchange or ICE jumped into the battle of creating an open market for price discovery of a sour Crude grade

At the heart of the debate on Crude oil pricing lies a paradox: as sour Crude grow in importance, the debate about pricing benchmarks has continued to focus on light sweet Crude such as Brent and WTI, which have been the markers for the last 22 years.

But as the world becomes critically reliant on heavier and higher-Sulphur streams, the emphasis needs to be increasingly on sour Crude since this grade is assuming more importance in the price discovery process. Producers and consumers face not only extreme volatility in the price of oil but also in the relationship between light sweet and heavy sour streams as the incremental heavy barrel behaves in line with its own fundamentals.

Government of India which decides the price as well as the excise duty and tax prefers to buy high percentage of sulphur contain Crude oil as the country has the innovative refining technologies. So the cost of petroleum product in India is less as compared to the global market along with the government policies. But the point to remember is that fluctuation of any Crude price globally impacts Indian oil price too. Weighted average price of both types (Oman-Dubai sour grade Crude and Brent dated sweet Crude) of oil means the price of India’s Crude basket.

Major Price influencing Factors for Crude

v OPEC output, supply and spare capacities.
v Currency Fluctuation.
v US Crude Products Inventories Data (Weekly).
v Increased demand from developing countries and geopolitics.
v Weather condition like storms, hurricane etc.
v Speculation buying and selling
v Economic factors like rapid growth of certain Asian countries.
v Other factors like terrorist attacks sudden outages etc.

Looking at the above factors, it is clear that world Crude price is not the only constituent in the Indian petrol price. Despite demand and supply there are several other factors too that affect Crude prices. Then there are other non-financial reasons too that impact Crude prices.

Exchanges dealing in Crude futures

v The New York Mercantile Exchange (NYMEX).
v Dubai Gold& Commodity Exchange (DGCX)
v The International Petroleum Exchange of London (IPE).
v The Tokyo Commodity Exchange (TOCOM).
v Multi Commodity Exchange of India (MCX)
v National Commodity and Derivatives Exchange Ltd. (NCDEX)

Types Of Crude Oil

Crude oils vary widely in appearance and viscosity from field to field. While all Crude oils are essentially hydrocarbons, the differences in properties, especially the variations in molecular structure, mean that a Crude is more or less easy to produce, pipeline, and refine.
Crude oils vary in price as they vary in quality. Other factors—the makeup of the oil or its market penetration—can also influence price. West Texas Intermediate and Brent Blend are two Crude oils that are either traded themselves or whose prices affect other types of Crude oil. Even Imported Refiner Acquisition Cost (IRAC), OPEC Basket, and the NYMEX futures have also some role to play while deciding the crude prices.
o It is classified as ‘sweet’ and ‘sour’, depending upon its sulphur content.
o Sweet Crude has less than 0.5 per cent sulphur content whereas sour Crude has more than 0.5 per cent. Sour Crude oils are cheaper than the sweeter variety.
o Sour is more complex and expensive to refine.
o Together the two main characteristics, the API (American Petroleum Institute) gravity and the sulfur content, are significant factors in explaining the price level and trade pattern of a particular Crude oil.
o The higher the API gravity the lighter the compound.

Some of the well-known varieties of Crude oils are as below:

West Texas Intermediate (WTI) refers to a high-quality light Crude oil that is refined in the United States. It is light and sweet thus making it ideal for producing products like low-sulfur gasoline and low-sulfur diesel. This is the benchmark used by the International Energy Agency and commonly in the Western Hemisphere. Its API gravity is 39.6 degrees and it contains only about 0.24 percent of sulphur. WTI is generally priced at about a $2-4 per-barrel premium to OPEC basket price.

Brent Crude oil refers to a light sweet Crude oil from North Sea. It has API gravity between 38-39 and has higher sulphur content than WTI Crude oil.
Brent Crude oil stands as a benchmark for Europe and in other parts of the world. Brent prices are typically $1–$2 less than WTI prices. It is more expensive than the Organization of Petroleum Exporting Countries (OPEC) basket.

Nigerian Bonny Light (sweet), a substitute of WTI, is a high grade of Nigerian Crude oil with high API gravity (low specific gravity), produced in the Niger Delta basin and named after the prolific region around the city of Bonny. The very low sulfur content of Bonny Light Crude makes it a highly desired grade for its low corrosiveness to refinery infrastructure and the lower environmental impact of its byproducts in refinery effluent.

Dubai Crude refers to a light sour Crude oil extracted from Dubai. It is used as a price benchmark or oil marker because it is one of only a few Persian Gulf Crude’s available immediately. It is generally used for pricing Persian Gulf Crude oil exports to Asia. The Dubai benchmark is also known as Fateh is used in the United Arab Emirates. Dubai Crude has a gravity of 31° API (specific gravity of 0.871) and sulfur content of 2%wt.

Suez Blend (sour) refers to a light sour Crude Oil extracted from Suez cannel. It has a gravity of 32 medium and sulfur content of 1.5 percent

Urals (CIS) (sour) refers to a light sour Crude Oil extracted from Russia. It has a gravity of 31-33 percent of API and sulfur content of 0.8-1.8.Its primary loading ports is Primorsk, Novorossiysk and Odessa.

Conclusion: The bottom line about all of this is that the most-commonly quoted type of Crude oil is light, sweet Crude. This is also one of the most-expensive, highest-quality types of Crude oil on the planet. The traditional benchmarks Brent and WTI are confirmed to be global price setters.

Exchanges dealing in Crude futures

v The New York Mercantile Exchange (NYMEX).
v Dubai Gold& Commodity Exchange (DGCX)
v The International Petroleum Exchange of London (IPE).
v The Tokyo Commodity Exchange (TOCOM).
v Multi Commodity Exchange of India (MCX)
v National Commodity and Derivatives Exchange Ltd. (NCDEX)

Crude Oil Units (average gravity)
v 1 US barrel = 42 US gallons.
v 1 US barrel = 158.98 liters.
v 1 tonnes = 7.33 barrels.
v 1 short ton = 6.65 barrels.
Note: barrels per tonnes vary from origin to origin.