IOC in talks with US producers for term deals to buy 1MT of oil

New Delhi: Indian Oil Corporation (IOC) is exploring term deals with producers in the United States for the purchase of about a million tonnes of crude oil, a move that could turn the US into one of its regular suppliers and counterbalance traditional producers in the Gulf.
Indian refiners began buying US crude in the spot market last year and the IOC’s term deal, when it happens, will be the first regular supply deal with the US.

“We are already taking spot cargoes. Now we are exploring term deals for US crude,” said AK Sharma, director (finance) at IOC, India’s largest refiner.

Term deals are usually annual contracts for the purchase of predetermined quantity at a price that varies with international rates during the period of contract.

IOC and other state-owned refiners source about 70% of their crude oil via term deals with multiple suppliers across producing regions. The balance 30% is procured from the spot market. Term deals ensure certainty in supply for refiners, and such firm supplies from the far-off US to India could bring traditional suppliers from West Asia under pressure and could help keep prices in check.

“The US has multiple suppliers and a variety of crude. We will have to select a basket of crude that suits us,” Sharma said, adding that term deals with US producers could add up to about one million tonnes of crude oil a year.

Indian refiners have to deal with just one national oil company for supply deals with traditional suppliers such as Saudi Arabia, Iran or Iraq, but in the US, the multiplicity of producers means multiple deals. “Prices have to be competitive. That’s the main criterion,” Sharma said.

IOC has so far struck deals with US suppliers for buying 10 million barrels of oil, or six cargoes, in the spot market. About 60% of the contracted volume has already been delivered.

IOC, Bharat Petroleum, and Hindustan Petroleum began taking US crude last year after a four-decade ban on US oil exports was lifted in 2015. Lately, the Trump administration has been pushing to raise oil and gas export to narrow the substantial trade surplus India enjoys with the US.

The US has been aggressively marketing its oil and gas, and its suppliers have been able to offer competitive rates to Asian buyers despite having to contend with higher freight due to the distance from consumers.

India and China have begun talks to form a consumers’ group to force the oil-producing cartel led by Saudi Arabia to seek a reasonable price. Higher oil prices hurt heavy importers such as India by inducing broader inflation and pushing up interest rate in the economy.