Indian Oil Corp eyes Saudi, US crude to replace bulk of Iranian volumes
Monday, 27 Jun, 2019
In brief: State-run Indian Oil Corp., or IOC, will be aiming to replace up to 70% of the Iranian crude volumes with incremental inflows from Saudi Arabia and the United States, as the country's biggest buyer of Iranian crude steps up effort to find alternative supplies, its chairman Sanjiv Singh told S&P Global Platts in an interview.
State-run Indian Oil Corp., or IOC, will be aiming to replace up to 70% of the Iranian crude volumes with incremental inflows from Saudi Arabia and the United States, as the country's biggest buyer of Iranian crude steps up effort to find alternative supplies, its chairman Sanjiv Singh told S&P Global Platts in an interview.
IOC, India's largest refiner, is keeping its options open to sign more long-term deals for the US crude. The company is also talking to most of the other term crude suppliers in the Middle East to make up for the remaining Iranian volumes, Singh added.
"Iranian volumes for IOC at the moment is zero. Saudi Arabia has sufficient spare capacity. They will be able to meet our requirements. We are also expecting that more US crude will be coming to the market in the second half of this year," Singh said.
IOC has secured term deals to import 4.6 million mt of US crude to help it replace just over half of its Iranian imports. Out of this production, 3 million mt will be supplied by Norway's Equinor, while the remaining 1.6 million mt will be sourced from Algeria's Sonatrach.
"Between Saudi Arabia and the United States, we will aim to cover about 70% of the Iran replacement crude," Singh said. "For the remaining amount we have flexibility in most of our term contracts to raise the volumes."
India's voracious appetite for US crude is already visible in the latest numbers from the US Energy Information Administration. The country imported 263,000 b/d of US crude in Q1 2019, an eightfold jump from as low as 33,000 b/d in Q1 2018. Inflows so far this year have also been more than double the 2018 average of 131,000 b/d.
While IOC could also be looking for incremental supplies from Kuwait, the UAE and Mexico to replace Iranian imports, it will also be actively seeking volumes in the spot market depending on commercial viability.
Large Volume to Replace
Iranian crude exports to India had been robust before the current sanctions were implemented in November 2018. But imports fell to around 190,000 b/d in Q1 2019, down sharply from 440,000 b/d in Q1 2018, according to S&P Global Platts Analytics.
"When a big supplier like Iran goes out of the market, there is an impact on prices. We are not concerned about supply but we are concerned about prices," Singh said, adding the India imports more than 80% of its crude oil requirements.
Singh added that rising Middle East tensions were a cause of concern as huge volumes of Indian crude supplies come through the Strait of Hormuz.
"If supplies through that channel are disrupted it will be a very difficult scenario. You can't prepare yourself for a long blockade of such channels," Singh said. "Our reserves can only take care of very short disruptions."
A series of recent attacks on oil tankers in the Gulf of Oman, including one on a UAE-flagged ship, has put the oil market on alert and triggered concerns over possible supply disruptions.
Iran has denied involvement in the incidents. But it has repeatedly threatened to close the narrow Strait of Hormuz, if its oil exports are squeezed by the US sanctions, which are supported by Saudi Arabia and the UAE. About 21 million b/d -- more than one-fifth of global oil supply -- transits through Strait of Hormuz.
US President Donald Trump on Monday signaled the US may lessen its role in policing the strait, calling on major importers of Middle East oil, including China and Japan, to pay their share to ensure freedom of navigation through the passage.
"As far as India's oil security is concerned, I would not say we are very comfortable but we are well-balanced. There is hardly any geography or oil supplier from whom we don't buy," Singh said. "So there are alternatives."