To ensure a steady inflow of crude oil at a time imports from Iran are falling, state-run Indian Oil Corp (IOC) has become the first domestic company to sign a long-term supply contract with the US.
The oil marketing company, in a statement released on Monday, said the annual deal is worth $1.5 billion and will be effective for FY20.
“IOC has finalised a term contract for import of up to 3 million tonne of crude oil of US origin grades as a part of its strategy to diversify term crude sources,” the company said, adding the contract was finalised on February 15.
FE in January reported IOC was looking at long-term contracts with US suppliers, and that negotiations were on while non-availability of official selling price (OSP) was proving to be a hurdle. Till now, Indian refiners have been buying US crude oil in spot markets since 2017.
FE had reported that Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) might also sign long-term contracts with the US since IOC was the negotiator and the terms were likely to be finalised for all three national oil marketing companies.
Unlike national oil companies with whom Indian refiners predominantly deal, US suppliers do not declare OSPs. Most state-owned oil explorers publish OSPs for different streams of crude oil and long-term customers are offered these prices. These prices are revised periodically and in most cases monthly. OMCs need approval from their boards to sign term deals with non-government foreign oil producers.
Prior to signing the term contract, IOC had entered into a term-tender deal with the US in August for 6 million barrels of US crude oil under a single tender for delivery between November 2018 and January 2019. The expected value of India’s oil imports from the US is likely to be about $4 billion this financial year, which is likely to go up as trade between the two countries expands.
According to reports, crude oil import from sanction-hit Iran fell to 270,500 barrels per day (bpd) in January from the estimated 300,000 bpd, or 1.25 million tonne per month, allowed as per the waiver extended by US for six months starting November. Before US put sanctions against Iran, the Persian Gulf country was the third largest supplier of crude oil to India. It currently is at seventh spot.