IOC doubles crude oil buy from Nigeria on term contract

State-owned Indian Oil Corp has nearly doubled the crude oil it buys from Nigeria on a term or fixed contract as it looks to diversify sources of supplies.

The nation's largest refiner, IOC buys some 8 million tons a year of crude oil from Nigeria. Most of it is bought from spot or current markets where prices are subject to extreme volatilities.

"Nigeria has now agreed to increase the term contract from 1.7 million tons per annum to 3 million tons in 2016," Oil Minister Dharmendra Pradhan said.

A term contract offers not just assured supplies but also cheaper price as the rate is based on official selling price of exporting country.

IOC is the only Asian company to have been offered a term contract by the new government in Nigeria which last month overhauled oil contracts, choosing to sell directly to international refineries, trading houses and local downstream firms.

For 2016, Nigeria signed term contracts for 991,000 barrels per day (bpd) of oil or half of its around 2 million bpd of production.

IOC was among the firms chosen for the contract alongside refiners like Spain's Cepsa, Italy's Saras, and ENOC of the United Arab Emirates. On the list were also trading houses Trafigura, Mercuria and Vitol and international oil companies ENI, Total, Exxon and Shell.

China's Sinopec and its trading arm Unipec, which are large buyers of Nigerian oil, do not figure in the list.

IOC Chairman B Ashok said Nigeria choose the companies from their track records and trading experience to ensure that its crude cargoes are not left unsold.

In 2015, Nigeria had sold term crude oil to 43 companies.

For 2016, 278 companies had submitted bids for crude oil contracts. Nigerian crude, Pradhan said, is low sulphur and suits Indian refineries.

Nigeria is India's third biggest oil supplier, selling 11.59 million tons in first half of current fiscal. It was behind only Saudi Arabia (19.56 million tons) and Iraq (17.01 million tons) in terms of supplies.

Ashok said crude purchases are based on techno-commercial viability. "A crude has to be commercially viable for me to buy and also technically feasible for our refineries to process.