INDIA BUYS U.S. OIL

PLATTS - State-run Indian Oil Corp has signed its first US term crude oil deal, buying 6 million barrels, as the Asian buyer steps up efforts to devise an alternative buying strategy amid uncertainty about purchases from Iran because of US sanctions.

IOC's director of finance A.K. Sharma told S&P Global Platts that the volumes would be shipped in in three VLCCs -- one each for delivery in November, December and January.

"Yes, we have signed the deals," Sharma said, but did not provide price details.

The deal is believed to be the first term deal by an Indian refiner. Until now, Indian refiners have been buying mainly spot cargoes from the United States.

A question mark on India's future strategy in buying crude oil from Iran as well as Beijing's trade war with Washington have opened a window of opportunity for Indian refiners to dramatically step up purchases from the US, a trend that could continue in the coming months, analysts told Platts earlier this week.

According to the latest US census export data, from an average of 29,000 b/d of crude flow from the US to India in the January-April period, the volume jumped sharply to 152,000 b/d in May, and 261,000 b/d in June, a new monthly record.

Private refinery sources in India added that an improvement in shipping logistics in the US had boosted the appetite of many Indian refiners for American crude on a regular basis, and some were also considering term purchases.

ECONOMIC VIABILITY

Sharma did not identify the exact crude grades that the state-run refiner bought on the latest US crude term deal, but some Asian trade sources based in Singapore said the Indian end-user could have bought a combination of light sweet grades and medium sour Mars Blend crude.

Arbitrage economics appear to favor IOC's decision to secure term supplies of US crude as the spread between WTI and Dubai crude price benchmarks remains in a steep discount, making various North American export grades extremely competitive.

Platts data showed the spread between the front-month WTI swap and same-month Dubai crude swap has averaged at minus $3.91/b in Q2, the biggest discount since averaging minus $5.13/b in Q3 2014.

Furthermore, the ouright price spread between Mars Blend and Iranian Heavy also favors the US grade purchase, S&P Global Platts data showed.

National Iranian Oil Company has set the official selling prices differential for Iranian Heavy grade for loading in July at a discount of 30 cents/b to the average of Platts Oman/Dubai crude assessments. The Platts benchmark averaged $73.17 last month, setting the final outright OSP for Iranian Heavy loaded in July at $72.87.

In comparison, S&P Global Platts has assessed July-loading Mars Blend crude at an average flat price of $70.40/b, almost $2.50/b below the medium sour Iranian grade's OSP for the same loading month.

The state-run refiner likely bought Mars Blend as an alternative feedstock grade to replace potential shortfall in imports of Iranian Heavy grade in the coming quarters.

Mars Blend is a medium density grade with gravity of API 29 and sulfur content of 1.8%, while Iranian Heavy has a gravity of around 30 API with a sulfur content of around 1.88%.

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Earlier:

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