India's IndianOil strikes first US crude import deal, buys 1.6 mil barrels of Mars grade
New Delhi 10-Jul-2017
Indian Oil Corp has sealed its first deal to import crude oil from the US, making it the first ever US crude purchase among India's state-run refiners, while more deals are possible in coming months, IndianOil's director of finance A.K. Sharma told S&P Global Platts in an interview.
IndianOil joins other refiners in leading Asian crude importers who have been sourcing US crude because of favorable economics, adding to the headache of some Middle Eastern suppliers, as they will have to brace for increased competition in India, which is witnessing robust growth in oil products demand.IndianOil's move to add the US to its long list of suppliers could open the way for more purchases by other Indian refiners, both state-run and private.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 said 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.
He said the cargo is scheduled to arrive at IndianOil's Paradip refinery in the first week of October.
""The way the economics is working out, we are finding it viable to buy more crude from the United States,"" Sharma added.
IndianOil 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.
The front-month Dubai crude swap has commanded a premium to the same-month WTI swap for most of this year. A weaker WTI versus Dubai crude typically makes various North, Central and South American crudes priced against WTI more competitive.
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. In comparison, 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.
TWEAKING BUYING STRATEGY
IndianOil so far has been buying most of is crude requirements from origins other than the US on a FOB basis. But for this deal, IndianOil took permission from the Indian government to buy on a Delivered Ex-Ship, or DES, basis. IndianOil declined to give the price details for the deal.""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 IndianOil was looking at five to six grades of US crude, including Mars crude, for future purchases. While initially IndianOil 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.
