India refiners in talks with Iraq on strategic reserves

Updated 03 June 2015

India refiners in talks with Iraq on strategic reserves

NEW DELHI: State refiners Indian Oil Corp. and Hindustan Petroleum Corp. are holding talks with Iraq’s national oil company to buy 4 million barrels of Basra light crude oil for India’s strategic petroleum reserves (SPRs), three sources said.
India in March asked the state refiners to each seek two very large crude carriers (VLCCs) of Iraq’s Basra crude oil for arrival in May-June totalling 8 million barrels for the reserves in the coastal city of Vizag in southern Andhra Pradesh state.
But after being faced with having to pay a premium for spot oil purchases the refiners had decided to directly negotiate with Iraq’s State Oil Marketing Organization (SOMO), said the sources with knowledge of the talks.
So far the indications were that SOMO would supply the refiners with Basra Light crude at the official selling price, said one of the sources, who declined to be identified due to the sensitivity of the issue.
The sources said the refiners were looking for the oil supplies to arrive in the next two to three months.
Hindustan Petroleum Corp. (HPCL) declined to comment.
Indian Oil Corp. (IOC) and SOMO did not immediately respond to e-mails seeking comment.
In a filing to Bombay Stock Exchange IOC clarified that the government has asked it and HPCL to procure crude oil from Iraq for Indian Strategic Petroleum Reserve Ltd.
IOC said it acted as facilitator for imports.
HPCL last month awarded a tender for June loading to European trader BP at $1.40 a barrel above the official selling price (OSP).
IOC, the country’s biggest refiner, agreed to pay a premium of 50-60 cents a barrel to Chinese trader Unipec for a VLCC arriving in mid-June.
“The spot market is getting pricey now,” said an Asian oil trader, highlighting recent spikes in Basra light premiums.
“I think SOMO’s ambition to push the OSP for Basra Light higher is achievable now.”
Spot premiums for Basra light crude hit a multi-year high after Iraq cut supply of the grade to export more of its new heavy grade in June.
In May, Iraq set the price for Basra Light cargoes loading this month at minus $2.55 a barrel against the average of Oman/Dubai quotes, up 25 cents from the previous month.
SOMO is expected to raise the price for July-loading cargoes next week.OSP/
India’s finance ministry has set aside 24 billion rupees (about $375 million) from revised budget estimates for the current fiscal year to pay for filling its first SPR allocation.
The Vizag facility has two compartments of 7.55 million barrels and 2.20 million barrels. The smaller compartment will be used by HPCL for its 166,000 barrel-per-day Vizag refinery.
HPCL is using Nigerian Qua Iboe oil supplied by Unipec for the smaller compartment.
A total of three SPRs in the south of India will hold more than 36 million barrels of oil, enough to meet about 13 days demand in India in case of a supply disruption or extreme price volatility.
The two other SPRs, at Padur and Mangalore in southern Karnataka state, will have a capacity of 29.3 million barrels and are expected to be ready by October.


Saudi Arabia: All options open to OPEC+ as China virus weighs on price

Saudi Arabia’s minister of energy, Prince Abdul Aziz bin Salman Al-Saud, pictured here at the World Economic Forum at Davos, Switzerland, warned it was too early for OPEC+ to make a decision on oil supply. (Reuters)
Updated 34 min 3 sec ago

Saudi Arabia: All options open to OPEC+ as China virus weighs on price

  • Group will meet in Vienna in March to set policy, with the possibility of further oil production cuts firmly on the table

DUBAI: Saudi Arabia’s Minister of Energy Prince Abdul Aziz bin Salman Al-Saud said all options were open at an OPEC+ meeting in early March, including further cuts in oil production, Al Arabiya reported. But he added it was too early to make a call on the need for more cuts.
“I can’t judge now if the market needs additional cuts because I haven’t seen the balances for January and February,” he said.
He added that when the Organization of Petroleum Exporting Countries and its allies led by Russia convened for an emergency meeting in March, the grouping would study where the market is and “objectively decide” if more cuts are needed.
OPEC+ agreed in December to widen supply cuts by 500,000 barrels per day (bpd) to 1.7 million bpd until the end of March.
Prince Abdul Aziz said the aim of OPEC+ was to reduce the size of the seasonal inventory build that takes place in the first half of the year.
OPEC+ is due to meet in Vienna on March 5 and 6 to set their policy. A ministerial monitoring committee for the deal will meet in Vienna on March 4.
Oil slipped below $62 a barrel on Friday and was heading for a weekly decline as concern that a virus in China may spread, curbing travel and oil demand, overshadowed supply cuts.

Saudi Arabia’s Prince Abdul Aziz bin Salman Al-Saud. (Reuters)

The virus has prompted the suspension of public transport in 10 Chinese cities. Health authorities fear the infection rate could accelerate over the Lunar New Year holiday this weekend, when millions of Chinese travel.
Global benchmark Brent is down almost 5 percent this week, its third consecutive weekly drop. US crude was also on course for a weekly decline.

FASTFACT

2nd - China is the world’s second largest oil consumer.

“One should be prepared for negative surprises when it comes to Chinese demand,” said Eugen Weinberg, analyst at Commerzbank. “The impact of this is all the greater because the restrictions are being imposed during the busiest travel season for the Chinese.”
China is the world’s second-largest oil consumer so any slowdown in travel would show up on demand forecasts.
Offering some support for prices was the US Energy Information Administration’s latest weekly supply report, which showed crude inventories fell 405,000 barrels in the week to Jan. 17.
Nonetheless, the upside for prices was limited. Oil inventories in the wider industrialized world are above the five-year average according to OPEC figures, which analysts say is limiting the impact on prices of supply losses.
“Such is the bearish pressure that a raft of ongoing crude supply outages are not gaining much traction,” said analysts at JBC Energy in a report.