We use cookies to give you the best possible experience on our website. By continuing to browse this site or by choosing to close this message, you give consent for cookies to be used. For more details please read our Cookie Policy.

Can India infiltrate new markets with oil deals?

India is eyeing greater flexibility in import contracts as its oil industry aims to tap new markets and continue to expand, but what will it mean for the industry?

At present, India is the fourth largest oil consumer on the planet, with refining capacity of 4.3 million barrels per day, yet the country imports a vast amount of the resources it requires - namely 80 per cent of its crude needs.

Furthermore, it has traditionally relied on the Middle East for heavy oil supplies and West Africa for lighter, sweet crude - something that state refiners are seeking to address by tapping into new sources of supply flushed out by the shale boom in the US, but also by aiming for greater flexibility in contracts.

As state refiners account for about two-thirds of the country's oil processing capacity, this would make a significant difference, and - it is hoped - would achieve a number of things:

  • By including both fixed and optional volumes in contracts, refiners would be able to fill some of their needs from cheaper spot cargoes from suppliers including Algeria, Latin America and Canada.
  • As refiners begin to negotiate new annual term contracts for the coming financial year, the Indian Oil Commission (IOC) is aiming to include both firm and optional volumes.
  • Contracts would include a fixed amount, in addition to an optional amount that buyers could forgo if cheaper spot supplies appear on the market.
  • Catalyse further changes from the Indian government that help the industry, such as updating regulations to reduce shipping costs, and extending the list of multinationals who are eligible to supply oil under term deals.

Sanjiv Singh, head of refineries at the IOC, which is by far the country's biggest refiner, said it is very much a buyer's market at present.

He elaborated: "We will be looking for flexibility from most of the term crude suppliers so that whenever some 'opportunity crude' is available in the market we can directly tap it."

Another factor coming into play is the rise in bargaining power that Indian firms have, with crude sources being far greater than before and most of them reaching Asia as there are little other markets for the surplus crude.

Already, flexible contracts are permeating the market, with the Bharat Petroleum Corp agreeing a deal with Chevron for West African grades and with Malaysian state oil firm Petronas, while Hindustan Petroleum has arranged similar contracts with Total for Iraqi Basrah, Petronas and Kuwait.

One tactic also proving fruitful is to pay for spot crude on the basis of prices in the month of loading and the subsequent month, rather than only the month of loading - something that has saved some firms a significant amount as global prices have been falling.

It appears that new approaches are working for India's oil sector, with flexible contracts seemingly the next big move as the industry continues to gain ground on its global neighbours.

Related Events

Get in Touch

Want news like this in your inbox?