U.S. government on Wednesday asked all countries, including India, to stop oil imports from Iran by 4 November
India meets 80% of its crude demand through imports, is the second-largest buyer of Iranian crude after China
10 million barrels of U.S. crude in 6 cargoes was bought on spot market; firms looking at term contracts now
Mumbai: State-run oil marketing companies (OMCs) plan to firm up long-term crude supply contracts and increase spot purchase of crude oil from the United States, said sources from these companies.
This comes in the wake of the US government on Wednesday asking all countries, including India, to stop oil imports from Iran by 4 November.
India meets 80% of its crude demand through imports and is the second-largest buyer of Iranian crude after China. Iran is also the third-largest supplier to India after Saudi Arabia and Iraq and imported 27.2 million tons of crude worth $11.1 billion between 2017 and 2018.
“We are looking at increasing our crude oil basket from the US crude as it will give us more flexibility when the variations in crude prices happen between Brent and Dubai and Brent and WTI (West Texas Intermediate). US crude is certainly being looked at as it continues to remain competitive for us,” said a senior official from one of the OMCs.
The US has multiple suppliers and the firms need to zero in on the best deal available, the OMCs said.
WTI-Brent differential evens out higher freight charge to ship from U.S.
The US offers a variety of crude, both low and high sulphur. For Indian refiners, distance is an important factor as this adds to the freight cost. If US crude trades at a discount to Brent crude with a difference of $3-4 a barrel, refiners say they can overcome the freight cost, making the crude an attractive option.
An Indian Oil Corporation Ltd (IOCL) spokesperson said that while the firm has been importing US crude as part of its spot purchases, it is looking to firm up term contracts as well. “IOCL as of today has struck deals for importing 10 million barrels from six cargoes in the spot market. We are regularly taking spot cargoes but are now also looking at term deals provided rates are competitive,” IOCL said.
For OMCs, 60-70% of crude oil supply is term contract as they need to ensure a steady supply. Around 30-40% of the crude requirement is imported on spot basis when maximizing on good deals available.
But smaller cargoes caused by U.S. port limitations are not optimal
“US crude, Latin American crude and Canadian crude are being looked at by Indian refiners, though, so far for US crude, there is no term contract and we are largely buying on spot,” said another senior official from one of the OMCs. “Besides, US crude is coming in small cargoes due to limitations in US ports. So freight optimization is something that needs to be considered.”
India’s major suppliers are Saudi Arabia and Iraq as they offer more varieties and by virtue of being neighbours the inventory carrying cost reduces.
Bharat Petroleum Corporation Ltd (BPCL), which has set up a trading desk with Shell India, is able to access worldwide opportunities for crude oil procurement, the company said. “This year, incidentally, we have also increased our plan for spot procurement to almost double, around 35-40% from 15-20%,” said R. Ramachandran, director, refineries, at BPCL.
In 2012, sanctions imposed on Tehran by the Obama administration had forced India to reduce its Iranian oil imports by half.
