Refiners in talks with Iraq on strategic reserves

State refiners Indian Oil Corp and Hindustan Petroleum Corp are holding talks with Iraq’s national oil company to buy 4 million barrels of Basra light crude oil for India’s strategic petroleum reserves (SPRs).

India in March asked the state refiners to each seek two very large crude carriers (VLCCs) of Iraq’s Basra crude oil for arrival in May-June totalling 8 million barrels for the reserves in the coastal city of Vizag in southern Andhra Pradesh state.

But after being faced with having to pay a premium for spot oil purchases, the refiners had decided to directly negotiate with Iraq’s State Oil Marketing Organisation (SOMO). Indications were that SOMO would supply the refiners with Basra Light crude at the official selling price. The refiners were looking for the oil supplies to arrive in the next two to three months.

IOC, the country’s biggest refiner, agreed to pay a premium of 50-60 cents a barrel to Chinese trader Unipec for a VLCC arriving in mid-June.

Spot premiums for Basra light crude hit a multi-year high after Iraq cut supply of the grade to export more of its new heavy grade in June.

In May, Iraq set the price for Basra Light cargoes loading this month at minus $2.55 a barrel against the average of Oman/Dubai quotes, up 25 cents from the previous month. SOMO is expected to raise the price for July-loading cargoes next week.

India’s finance ministry has set aside about $375 million from revised budget estimates for the current fiscal year to pay for filling its first SPR allocation.

A total of three SPRs in the south of India will hold more than 36 million barrels of oil, enough to meet about 13 days demand in India in case of a supply disruption or extreme price volatility.