Indian companies have stepped up purchases of high-sulphur crude oil from the Middle East and Russia in the spot market to feed demand from expanded refining capacity, trade sources said.
Four refiners in the world’s third largest crude importer bought 9 million barrels of Middle East and Russian crude loading in July-August via spot tenders last month, drawing down excess supplies in the market after China’s demand slowed.
Refiners such as Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) have opted to buy more spot crude as they gradually ramp up output, rather than increase long-term crude supplies, the sources said.
IOC expects to run its new 300,000-bpd Paradip refinery at full capacity this year, while BPCL plans to ramp up output at its Kochi refinery to 310,000 bpd by September after an expansion, they said.
“Refiners are buying heavier grades to increase middle distillate and fuel oil yields,” Ehsan Ul Haq, director at London-based consultancy Resource Economics said, as refining profits for these products have strengthened.
Indian refiners have also increased room for spot purchases during a period of abundant supplies, allowing them to react quickly to market changes and pick up cargoes when prices are competitive.
Mangalore Refinery and Petrochemicals Ltd (MRPL) and BPCL have bought Omani and Bahraini crude while IOC bought 5 million barrels of Abu Dhabi, Iraqi and Russian Urals crude.
Sellers include Litasco, the trading arm of Russian producer Lukoil, Sinochem Corp and Vitol, traders said. The companies did not respond to e-mails and calls seeking comments.
India is buying more Brent-linked Urals crude this year, with imports to hit an all-time high of 4 million barrels in July, after the price gap between Brent and Dubai narrowed to multi-year lows of below $1 a barrel.
Some Indian refiners are also exploring the feasibility of importing U.S. crude, sources said, joining other Asian buyers such as China and Japan that stepped up imports from the United States this year on weak WTI prices.
Still, India’s crude demand is expected to fall early in the fourth quarter as several refineries are scheduled to shut for maintenance.