A Bharat Petroleum refinery is seen in Mahul, Mumbai. India, Asia’s second-biggest energy user, is in talks with Saudi Arabia and Kuwait for better terms on oil contracts as surging US output frees up supplies.
Bloomberg
India, Asia’s second-biggest energy user, is in talks with Saudi Arabia and Kuwait for better terms on oil contracts as surging US output frees up supplies.
Hindustan Petroleum Corp, India’s third-largest state refiner, is seeking to at least double the interest-free credit period for crude purchases from Saudi Arabia and Kuwait to 60 days, B K Namdeo, the company’s refineries director, said in Mumbai. Mangalore Refinery & Petrochemicals wants price discounts for agreeing to contracts that are more than 10 years long, according to managing director P P Upadhya.
“Discussions are going on, and we expect the extended credit period to be reflected in the new contracts from April 1,” Namdeo said. “There is a surplus in the market, and India should take full advantage of the situation.”
A shale-oil boom in the US, the world’s biggest consumer, has pushed crude production to the highest in almost 26 years, leading the country to cut imports. In response, some of the biggest Middle East producers are turning to Asian nations to lock in buyers as the easing of sanctions on Iran brings more oil into the market.
“Deals between Indian refiners and countries in the Middle East are best viewed as a security of supply effort,” said Abhishek Kumar, a London-based energy and modelling analyst at Interfax Europe’s Global Gas Analytics. “Countries like Saudi Arabia and Kuwait are as much concerned about competition from Iran as from the US.”
Indian Oil Corp, the nation’s biggest refiner, is in talks with some Middle East suppliers, including Saudi Arabia and Kuwait, to increase the credit period for crude purchases to 60 days, its finance director P K Goyal said in an interview in New Delhi on Wednesday. Iraq, the company’s biggest crude supplier, started offering 60-day credit from January, he said.
Iran currently gives Mangalore Refinery and Mumbai-based Essar Oil 90-day credit.
“Until some years back, Saudi Arabia used to give us better payment terms, which was later stopped,” said B K Datta, Mumbai-based director of refineries at Bharat Petroleum Corp, the nation’s second-biggest state refiner. “It will be good if payment terms are relaxed once again.” Kuwait Petroleum officials couldn’t immediately be reached to comment on potential changes to payment terms. Saudi Aramco declined to comment.
Indian state-run refiners sell fuels below their production cost to help the government curb inflation. While they are partly compensated by the government, subsidies are often delayed, forcing the oil processors to borrow money.
“Longer credit periods from the biggest crude suppliers will help the refiners reduce their working capital loans, which in turn will bring down interest charges,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd “This is crucial, especially because the compensation provided by the government is not regular and takes time to come.”
Oil companies rose in trading on Thursday in Mumbai. Bharat Petroleum increased as much as three% to Rs399.20, the highest since May 2013. Hindustan Petroleum gained as much as 3.8%, Indian Oil, 2.2%, and Mangalore Refinery, 3.5%.
Imports of Iranian crude by countries including China, Japan and India rose by 100,000 barrels a day in January to 1.32mn barrels as a deal easing sanctions over Iran’s nuclear programme took effect, the International Energy Agency said in its monthly oil market report released on February 13. Six world powers including the US agreed to ease sanctions on Iran in November in return for curbs on the nuclear programme.
India, which imported about 185mn metric tonnes (3.7mn barrels a day) of crude in the year ended March 2013, gets about 63% of its requirement from Middle East suppliers including Saudi Arabia, Kuwait, Iraq, Iran, the UAE, Qatar, Oman and Yemen, according to data from India’s ministry of oil.
