Indian Oil Corp has received the government nod to buy one very large ship full of crude oil from the US every month this year as it looks at cheaper alternatives that have emerged due to global supply glut.
The shipping ministry has allowed the country’s largest oil firm to import one parcel or cargo of crude oil from the US every month in foreign ships, said a senior oil ministry official. India allows import of crude oil only on Indian carriers.
As per the policy, Indian shipping lines get the first right of refusal by virtue of they being allowed to match any lowest bidder for transportation of crude oil. Only when they waive their right can the oil firms use a foreign line.
Transporting US crude needs very large crude carriers (VLCCs) and can be done only by foreign shipping lines. And to do that, oil companies have to obtain permission of the shipping ministry.
The official said IOC had last month sealed a deal to import 1.6 million barrels of crude from the US for delivery in the first week of October at its Paradip refinery in Odisha — 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. “Going forward, the company feels it can import one VLCC a month and so has obtained the permission,” he said.
A VLCC can carry up to 2 million barrels of oil.
Bharat Petroleum Corp Ltd (BPCL) has bought two of the US cargoes. A few days ago it bought 1 million barrels of US WTI Midland sweet crude for delivery in October — its first purchase of the sweet variety from the US.
In July, it bought 500,000 barrels each of Mars and Poseidon varieties of medium-to-high-sulphur crude for delivery to its Kochi refinery between September 26 and October 15.
Hindustan Petroleum Corp Ltd (HPCL) is also looking at buying US crude oil.
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.
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 is cost competitive to Indian refiners, he said.
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.
However, for importing crude from the US, the refiners have to take special permission from the shipping ministry. So, IOC and BPCL had to obtain permission to buy the cargo on a delivered basis where the seller arranges for the ships. “Indian shipping lines don’t have vessels to match the demand. They account for only 22 per cent of the total oil transportation and bulk of this is coastal shipping,” the official said.