American oil to ease India’s oil dependency on Gulf countries? India-US oil supply contracts on cards but price a hurdle

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New Delhi | Published: January 17, 2019 5:06:58 AM

In order to ensure a steady inflow of crude oil given that supply from Iran has been capped, the country’s oil marketing companies are looking at long-term contracts with US suppliers, but non-availability of official selling price (OSP) is proving to be a hurdle.

crude oil, india, usIndia, which uses 80% of imported crude oil for its requirements, imports around 10% of its crude oil requirement from Iran, the third largest supplier after Saudi Arabia and Iraq.

In order to ensure a steady inflow of crude oil given that supply from Iran has been capped, the country’s oil marketing companies are looking at long-term contracts with US suppliers, but non-availability of official selling price (OSP) is proving to be a hurdle. Till now Indian refiners have been buying US crude oil in spot markets.

According to a top IOC official, the company is negotiating terms with US suppliers. While the official did not disclose if other OMCs — BPCL and HPCL — are part of the negotiation, terms will likely be finalised for all three and contracts will be signed by individual companies.

“Unlike national oil companies with whom Indian refiners predominantly deal, US suppliers do not declare OSPs which is an issue,” said the official.

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, in most cases monthly.

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 expand.

According to US Energy Information Data, India’s US oil imports jumped from 17,000 barrels per day (bpd) in April 2018 to 152,000 bpd the next month and hit a high of 261,000 bpd in June before tapering down, to pick up again to 251,000 bpd in October.

The supply from US is likely to remain high as IOC alone bought 6 million barrels of crude oil from the US for delivery of 2 million each from November to January. The purchase was done through the company’s first mini-term tender to buy crude oil from the US.

The US crude futures remain at a discount to Brent and Indian companies are hoping to get a stable price through contract. As per reports, at the 2+2 meeting between India and the US late last year, while the Indian side had indicated that it will work to correct the trade deficit with the US and buying oil will be one of the options, it was also conveyed that economics will be considered rather than politics while buying US oil. Indian refiners are forced to look at long-term supply options as under the US sanction on Iran, India can import up to 300,000 barrels a day of crude oil compared with an average daily import of nearly 560,000 barrels earlier.

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India, which uses 80% of imported crude oil for its requirements, imports around 10% of its crude oil requirement from Iran, the third largest supplier after Saudi Arabia and Iraq. For 2018-19, India had planned to import about 25 million tonne of crude oil from Iran, up from 22.6 million tonne imported in 2017-18. But the actual volumes could turn out to be less due to curtailed import at present.

Interestingly, an official from Norway’s energy firm Equinor ASA earlier this month said that the company was close to finalising a long-term crude oil supply contract with an India refiner. Equinor undertakes trading and marketing activities in India and will soon be opening an office. Without naming the company, Tor Martin Anfinnsen, senior vice-president for trading and marketing, Equinor, had told FE that the crude oil deal will be concretised soon.

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