India, Nigeria’s biggest oil destination, has started buying crude from the United States as it looks to diversify its sources of the commodity.
It is the latest Asian country to buy the US crude after South Korea, Japan, China, Thailand, Australia and Taiwan as the cuts by the Organisation of Petroleum Exporting Countries drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content.
Refiners in India, the world’s third biggest oil consumer, are diversifying crude imports as cheaper alternatives have emerged due to a supply glut in the global markets.
Indian state-run refiner, Bharat Petroleum Corporation Limited, bought one million barrels of sour crude from the US for its 190,000 barrels per day Kochi refinery, company officials said — its first ever purchase of the US crude via a tender.
The refiner bought 500,000 barrels each of Mars and Poseidon grades for delivery to the west coast of India between September 26 and October 15 through a tender that closed on July 14.
Earlier this month, Indian Oil Corporation, the country’s largest refiner, sealed a deal to import 1.6 million barrels of the US crude for delivery in the first week of October to its Paradip refinery on the east coast — its first ever purchase of the US crude.
The IOC deal came shortly after the visit of the Indian Prime Minister, Narendra Modi, to the US, where boosting energy cooperation between the two countries was discussed.
The price of the US sour crude blends that Indian refineries are showing an appetite for is “reasonably competitive,” according the Director (Refineries), Bharat Petroleum Corporation, Ramamoorthy Ramachandran.
“We are also looking at buying low sulphur oil from America if priced competitively. Our refineries need both low sulphur and high sulphur oil,” he said, adding the latest purchase was a trial cargo, according to Economic Times.
Analysts have said the rise in exports from the US would add to global oversupply, and intensify the tussle for market share between the US, OPEC and Russia. It could weigh on crude oil prices.
An overhaul at Indian refineries has made heavier crude blends a new favourite since they are cheaper than lighter ones.
The US-India energy cooperation also includes Indian energy companies signing more than $30bn in long-term contracts for the US-produced liquefied natural gas, and an upcoming trade mission of the US technologies that can optimise the performance of India’s oil refineries.
The Vice-President/Head of Energy Research, Ecobank, Mr. Dolapo Oni, said, “India is in a bit of a buyer’s market now; they have the ability to dictate terms to the market a bit and I think that is what they are trying to use. It’s still a bit expensive to bring in oil from the US in terms of freight cost and the likes.
“But I think they know that they can pull all these kinds of strings now to influence the market and push countries like Nigeria to give them discounts. I don’t think it (the US) is going to replace Nigeria anytime soon. But I think it just reflects the buying power of India and its desire to diversify its supply sources.”
Last week, Indian oil minister, Dharmendra Pradhan, said the current state of the global oil market, characterised by low oil prices, was helping India diversify its oil supply sources, as evidenced by its recent purchase of US sour crude.
“Gone are the days of the seller, now the consumer is the king… Market security and supply security is the new norm, according to our understanding,” Pradhan said in Istanbul at the World Petroleum Congress.
In an oversupplied market, “it is important for the producer to understand the perspective of the consumer,” he said.
The US removed the 40-year-old restrictions on its crude exports in December 2015 following the rapid growth of its oil production.