Indian Oil Corporation (IOC) has signed its first annual deal to buy United States (US) oil, paying about $1.5 billion for 60,000 barrels a day in the year to March 2020 to diversify its crude sources, its chairman said on Monday. IOC is the first state refiner to buy US oil under an annual contract, in a deal that will also help boost trade between New Delhi and Washington.
The company has previously purchased US oil from spot markets and signed a mini-term deal in August to buy 6 million barrels of US oil between November and January. IOC chairman Sanjiv Singh said the annual contract will begin from April. He declined to give the name of the seller or pricing details, citing confidentiality. A trade source, who is not authorised to speak to media, said IOC has signed the deal with Norwegian oil company Equinor.
Equinor, which has set up an office in New Delhi to support oil marketing and trading, did not immediately respond to an email seeking comment. Indian Oil buys about 75 per cent of its oil needs through long-term deals, mostly with OPEC nations. The term deal will help cut IOC's dependence on Organisation of the Petroleum Exporting Countries (OPEC) crude, said Sri Paravaikkarasu, head of east of Suez oil for consultants FGE in Singapore.
“Lots of geopolitical issues are going around. We expect lots of volume going away from Venezuela, west Africa and Iran, so it makes sense to have guaranteed term supplies from the US, where crude production is increasing,” she said. “There is a push for diversification everywhere. South Korea is giving a freight rebate for non-Middle East crude imports,” she added.
India and the US, which have developed close political and security ties, are also looking to develop bilateral trade, which stood at $126 billion in 2017 but is widely seen to be performing well below its potential. The two countries have set up seven groups of chief executives with top US and Indian firms to boost bilateral trade in areas including energy. Last week Petronet LNG signed an initial deal to invest and buy LNG from Tellurian Inc's proposed Driftwood project in Louisiana in the US.
