State-owned IOC is stepping up purchase of crude oil from the US and will this month tender for second cargo as it looks at cheaper alternatives that have emerged due to a global supply glut. “We will this month tender to buy 2 million barrels of crude oil,” Indian Oil Corp (IOC) Director (Finance) A K Sharma said here. IOC had sealed a deal last month to import 1.6 million barrels of crude from the US for delivery in the first week of October to its Paradip refinery in Odisha — the first ever such purchase of US crude by an Indian state-run refiner. “There are 6-7 grades of US crude. The second cargo will be for delivery in November,” he said.
India, the world’s third-largest oil importer, joins Asian countries like South Korea, Japan and China to buy US crude after production cuts by OPEC drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content. After IOC, Bharat Petroleum Corp Ltd (BPCL) too has bought 1 million barrels of sour crude from the US for its Kochi refinery. The deals by IOC and BPCL comes within weeks of Prime Minister Narendra Modi’s visit to the US when President Donald Trump talked of his country looking to export more energy products to India. IOC Chairman Sanjiv Singh said IOC bought crude from US for the first time after crude export ban was lifted in December last year. “This has opened new sources of crude oil,” he said.
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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 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 proved to be very cost competitive to us and so we bought one very large crude carrier (VLCC) cargo through a tender from the spot (or current) market last month and will tender for another VLCC this month,” Sharma said. But for importing crude from the US, the refiners have to take special permission from the shipping ministry. India allows import of crude oil only on Indian carriers (the buyer arranging for ships to ferry the oil).
However, in case of US, this was not possible as VLCCs can’t load on US ports and crude has to be first loaded on small ships and at high sea the same is put on a VLCC. So, IOC and BPCL had to obtain permission to buy the cargo on a delivered basis where the seller arranges for the ships.
Sharma said IOC can buy 5-6 shiploads this year if the price differential stays favourable.