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India, the world's third-largest oil importer, has sealed a first deal to import crude oil from the US and the shipment is expected to touch Indian shores in October.
The deal, by state-owned Indian Oil Corp (IOC), 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.
"We have bought 2 million barrels of crude oil from North America comprising 1.6 million barrels of US Mars crude and 400,000 barrels of Western Canadian Select," IOC Director (Finance) A K Sharma told PTI here.
US Mars is a heavy, high-sulphur grade which will be processed at IOC's newest refinery at Paradip in Odisha.
"Given the current international oil markets where 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 proved to be very cost competitive to us and so we bought one very large crude carrier (VLCC) cargo through a tender from the spot (or current) market," he said.
Sharma said the company will buy more crude from the US if the market conditions remain favourable for such purchases.
The IOC move has already led to more purchases by other Indian refiners. State-owned Bharat Petroleum Corp Ltd (BPCL) too tendered to buy one million barrels of crude either for loading on August 16-September 5 or delivery on Septeber 26- October 15.
But for importing crude from the US, IOC had to take special permission from the shipping ministry.
"Indian government policy provides for purchases of crude oil to be made on condition that the shipping will be done by the Indian carriers (the buyer arranging for ships to ferry the oil).
"However, in case of US, this was not possible as VLCCs can't load on US ports and crude has to be first loaded on small ships and at high sea the same is put on a VLCC," he said.
So, IOC obtained permission to buy the cargo on a delivered basis where the seller arranges for the ships.
"Every time we decide to buy US oil, we will have to take this permission," he said adding the cargo contracted will be delivered at Paradip refinery in the first week of October.
Indian refiners are joining their Asian counterparts to diversify their crude slate following the narrowing of the Dubai spreads against West Texas Intermediate (WTI) and Brent prices in the wake of OPEC/non-OPEC production cut deal.
Sharma said that IOC is looking at five to six grades of US crude, including Mars crude, for future purchases.
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