India looks to U.S. oil suppliers for competitively priced crude

July 12, 2017 – India’s largest oil refiner recently purchased 1.6 million barrels of the Gulf of Mexico’s Mars Blend crude. India Oil Corporation expects the shipment to arrive in October on a very large crude carrier. This is the company’s first purchase of American crude oil.

India is currently the fastest growing oil market, making the country an appealing market for U.S. oil exporters. The country has a two trillion-dollar a year economy, and the International Energy Agency predicts that India will be the fastest growing oil consumer through the year 2040.

India will increasingly buy more energy from the United States into the future. This was confirmed in a meeting last month between President Donald Trump and Prime Minister Narendra Modi.

The immediate interest comes from OPEC’s recent production cuts that have reduced supplies to Asian markets. The cuts have also made the prices other types of crude such as Brent and West Texas Intermediate more competitive in comparison.

“Mars crude traded at about 70-90 cents a barrel below West Texas Intermediate on a free-on-board (FOB) shipping basis late last week. That’s equivalent to a 10-cent discount to 10-cent premium over Dubai crude on a cost and freight (CFR) basis to Japan on a VLCC,” according to Bloomberg calculations.

“Middle Eastern suppliers are waking up to the growing dominance of U.S. crude in the Asian market. Heavy grades of U.S. crude have become more price competitive compared with those from the Middle East, thanks to OPEC’s oil-output cut, which provided the U.S. an opportunity to boost its own oil production,” commented Abhishek Kumar, a senior energy analyst at Interfax Global Gas Analytics in London.

India mainly imports oil from the Middle East, Latin America, and Africa, but has been interested in purchasing American crude since the U.S. lifted its ban on exporting unrefined crude in 2015.

There are several reasons that American crude works well for Indian customers. One reason is highlighted by Indian Oil Corporation’s chairman Sanjiv Singh, “U.S. crude prices are competitive relative to OPEC supplies, and the ability of Indian refiners to process different grades is helping the nation take advantage of attractive pricing.”

Indian Oil’s finance director, Arun Kumar Sharma reiterated U.S. crude’s pricing, “North American crude has become very competitive to Middle East crude because of narrowing Brent-Dubai differentials and low freight charges.”

Indian Oil Corporation isn’t the country’s only refiner looking to purchase American crude. Bharat Petroleum Corporation, a state-run refiner, wants to purchase one million barrels of U.S. crude for delivery in September or October. The company is interest in American grades like: Thunder Horse, Southern Green Canyon, Mars Blend, West Texas Sour, and Alaskan North Slope.

“We are trying to increase our independence from certain crudes,” said R. Ramachandran, the head of refineries at Bharat Petroleum Corporation.

American producers can benefit from the extreme competiveness around the globe if they can continue to run efficiently. India’s Oil Minister Dharmendra Pradhan summed up the current oil market nicely during an energy conference in Istanbul, “Days of suppliers are gone, consumers are kings now.”

Article written by HEI contributor Raymond Arrasmith.

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