By Shalini Pandey
Indian Oil Corp. Ltd (IOCL), the countrys largest oil firm, has successfully received the government’s nod after it sought special permission from the shipping ministry to buy one very large ship full of crude oil from the US every month this year. It looks to take advantage of cheaper alternatives that have emerged due to supply slowdown in the international market.
Interestingly, the shipping ministry has allowed the importing of one parcel or cargo of crude oil from the US every month in foreign ships. This is unprecedented as importers allow import of crude oil only on Indian carriers, as local regulations favour the use of Indian flagged carriers for them.
First ever purchase of US crude by an Indian state-run refiner
IOCL had last month sealed a deal to import 1.6 million barrels of US Mars crude, a heavy, high sulphur grade from the US for delivery in the first week of October at its Paradip refinery in Odisha. It is the first ever such purchase of US crude by an Indian state-run refiner. It is stepping up the imports and is tendering for a second cargo., said a senior oil minister.
The deal comes as a follow up to Prime Minister Narendra Modi’s visit to the US in June when President Donald Trump said his country looked forward to exporting more energy products to India.
Transporting US crude needs very large crude carriers (VLCCs) and can be done only by foreign shipping lines. A VLCC can carry up to 2 million barrels of oil. Going forward, the company feels it can import one VLCC a month and so, has obtained the permission., said IOC’s head of finance, A. K. Sharma. Indian shipping lines dont have vessels to match the demand. They account for only 22% of the total oil transportation and bulk of this is coastal shipping, So long as the prices remain competitive, we will buy more of the U.S. crude, he said.
Why US Crude?
India, the world’s third-largest oil consumer, is the latest Asian country to buy US crude after South Korea, Japan, China, Thailand, Australia and Taiwan. These countries seek to diversify oil imports from other regions after the OPEC cuts drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content.
Buying US crude has become attractive for Indian refiners after the differential between Brent (the benchmark crude or marker crude that serves as a reference price for buyers in the western world) and Dubai (which serves as a benchmark for countries in the east) has narrowed. Even after including the shipping cost, buying US crude is cost competitive to Indian refiners. Indian refiners are seeking these heavy, high-sulphur grades as feed-stocks after modifications at their plants to make it easier to process these types of crudes, which typically sell at a lower cost relative to other oil types.
The US could become an alternative source for the Indian companies for these grades.
Other players in the Indian refinery, Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) are also planning to buy US crude oil, with BPCL already issuing a purchase tender.
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