Oil refiners take advantage of crude oil glut

The surge in oil supplies that has crushed prices is prompting some refiners in Asia to buy more crude that can be delivered immediately rather than at some future date, adding to pressure on sellers. Short-term deals that in the past were about 10 percent of purchases by the nation’s refiners are now increasing and may account for as much as a quarter in the future.

With Organization of Petroleum Exporting Countries (OPEC) pumping the most in almost three years and the US producing the most in three decades, the refiners are showing little concern that prices will suddenly surge. Japan’s JX Nippon Oil & Energy Corp., South Korea’s SK Innovation Co. and Indian Oil Corp. are among the processors seeking to boost profits by purchasing more in the spot market while shrinking what they buy under long-term contracts where prices are generally higher.

The shift is a challenge for producers such as Saudi Arabia, the largest exporter, that sell crude through term contracts, undermining their attempts to defend market share with more output. Demand for last-minute deals may prompt Middle East suppliers to cut prices.

Term contracts accounted for about 70 percent of Mumbai- based Indian Oil Corp.’s oil purchases in the last fiscal year, down from 80 percent previously because spot agreements offer more “flexibility,” said Sanjiv Singh, director of refineries at the country’s biggest processor.

Crude prices have rebounded from a six-year low after slumping almost 50 percent in 2014. Brent, the benchmark for more than half the world’s oil, has gained about 40 percent since Jan. 13 and fell 30 cents to $64.81 a barrel. West Texas Intermediate crude, the US marker, was down 41 cents at $60.36.

Global supplies are increasing as OPEC sticks to its policy of favoring market share over supporting prices by cutting output.

The global surplus is forcing producers to adopt new strategies to lock in sales. Saudi Arabian Oil Co. plans to spend $70 billion to $80 billion on overseas acquisitions and investments in the next five years. The producer sold March supplies of its Arab Light oil to Asia at the biggest discount in at least 14 years as it sought to defend market share.