Indian Oil Corp strikes first US crude import deal
10 Jul 2017
Indian Oil Corp has sealed deal to buy 1.6 million barrels of Mars grade crude, making it the first Indian state-run company to import crude oil from the United States, with more such deals lined up in the coming months, reports quoting IOC's director of finance A.K. Sharma told S&P Global Platts in an interview.
The US crude purchase deal, announced by Sharma during an interview with S&P Global Platts, puts India's state-run refiners in a better position in sourcing crude from Middle East suppliers.
The first consignment of US crude is scheduled to arrive at IOC's Paradip refinery in the first week of October, the report said.
Besides IOC, several other refiners in leading Asian crude importing countries have been sourcing US crude because of favorable economics, putting Middle Eastern suppliers in a tighter spot.
It is likely that more Indian refiners – both public and private - turn to US crude to meet their crude requirements.
The deal comes shortly after Indian Prime Minister Narendra Modi's visit to the US, where both countries discussed the possibility of boosting energy cooperation.
"The deal has just been finalized. It will be a combined VLCC cargo, which will carry 1.6 million barrels of US Mars crude and 400,000 barrels of Western Canadian Select," Sharma was quoted as saying over the weekend.
"As far as the cost comparison is concerned, we found it to be quite competitive, including the shipping cost. It will be competing with Basrah Light as far as the cost is concerned," Sharma added.
"The way the economics is working out, we are finding it viable to buy more crude from the United States," Sharma added.
IOC joins other Asian refiners who have begun to diversify their crude slate, following the narrowing of the Dubai spreads against WTI and Brent prices in the wake of the OPEC/non-OPEC production cut deal.
With Dubai crude commanding a premium to WTI swap for most of this year, prices of crude from North, Central and South American oil fields that are linked to WTI looked competitive for buyers.
The spread averaged at a premium of $1.28/b in the second quarter and $0.49/b in the first quarter of this year, Platts data showed. Against this, the spread between Dubai and WTI swaps averaged at a discount of $1.62/b in the fourth quarter of last year or minus $2.48/b for the whole of 2016.
However, while supplies from IOC's other, mostly Middle Eastern, sources were on an FOB basis, IOC is reported to sought government permission to buy on a delivered ex-ship, or DES, basis, meaning that he supplier will use their vessel to deliver the oil.
"We have purchased this cargo on a DES basis because at US ports, we will not be able to load the VLCCs directly. The crude will be loaded in smaller ships, which will then be loaded on the VLCC on the high seas. Then it will be transported to India. In this way, it will be able to meet the cost economics," Sharma added.
"This is possible when the supplier does the entire exercise. We ourselves cannot do it there. We took the permission from the government for the crude to be supplied on the suppliers' ship on a DES basis. Our government allowed that," he added.
Sharma said IOC was looking at five to six grades of US crude, including Mars crude, for future purchases. While initially IOC would aim to buy a few spot cargoes, mainly through tenders, it would also explore the possibility of buying US crude through term deals.
"So long as the prices remain favorable, we can buy more. We are looking at five to six grades from the United States. Whichever grade works out, we will buy through tender. The first purchase is a spot purchase. Let us buy a few cargoes through spot tenders. Then, we will examine the possibility of term purchases," he said.
