Refiners Eye Better Oil Deal Terms On U.S. Boom: Corporate India

India, Asia’s second-biggest energy user, is in talks with Saudi Arabia and Kuwait for better terms on oil contracts as surging U.S. output frees up supplies.



Hindustan Petroleum Corp. (HPCL), India’s third-largest state refiner, is seeking to at least double the interest-free credit period for crude purchases from Saudi Arabia and Kuwait to 60 days, B.K. Namdeo, the company’s refineries director, said in Mumbai. Mangalore Refinery & Petrochemicals Ltd. (MRPL) wants price discounts for agreeing to contracts that are more than 10 years long, according to Managing Director P.P. Upadhya.



“Discussions are going on, and we expect the extended credit period to be reflected in the new contracts from April 1,” Namdeo said. “There is a surplus in the market, and India should take full advantage of the situation.”



A shale-oil boom in the U.S., the world’s biggest consumer, has pushed crude production to the highest in almost 26 years, leading the country to cut imports. In response, some of the biggest Middle East producers are turning to Asian nations to lock in buyers as the easing of sanctions on Iran brings more oil into the market.



“Deals between Indian refiners and countries in the Middle East are best viewed as a security of supply effort,” said Abhishek Kumar, a London-based energy and modeling analyst at Interfax Europe Ltd.’s Global Gas Analytics. “Countries like Saudi Arabia and Kuwait are as much concerned about competition from Iran as from the U.S.”

Credit Terms



Indian Oil (IOCL) Corp., the nation’s biggest refiner, is in talks with some Middle East suppliers, including Saudi Arabia and Kuwait, to increase the credit period for crude purchases to 60 days, its Finance Director P.K. Goyal said in an interview in New Delhi yesterday. Iraq, the company’s biggest crude supplier, started offering 60-day credit from January, he said.



Iran currently gives Mangalore Refinery and Mumbai-based Essar Oil Ltd. 90-day credit.



“Until some years back, Saudi Arabia used to give us better payment terms, which was later stopped,” said B.K. Datta, Mumbai-based director of refineries at Bharat Petroleum Corp., the nation’s second-biggest state refiner. “It will be good if payment terms are relaxed once again.”



Kuwait Petroleum officials couldn’t immediately be reached to comment on potential changes to payment terms. Saudi Aramco declined to comment.



Indian state-run refiners sell fuels below their production cost to help the government curb inflation. While they are partly compensated by the government, subsidies are often delayed, forcing the oil processors to borrow money.

Working Capital



“Longer credit periods from the biggest crude suppliers will help the refiners reduce their working capital loans, which in turn will bring down interest charges,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “This is crucial, especially because the compensation provided by the government is not regular and takes time to come.”



Oil companies rose in trading today in Mumbail. Bharat Petroleum increased as much as 3 percent to 399.20 rupees, the highest since May 2013. Hindustan Petroleum gained as much as 3.8 percent, Indian Oil, 2.2 percent, and Mangalore Refinery, 3.5 percent.



Imports of Iranian crude by countries including China, Japan and India rose by 100,000 barrels a day in January to 1.32 million barrels as a deal easing sanctions over Iranâ??s nuclear program took effect, the International Energy Agency said in its monthly oil market report released Feb. 13. Six world powers including the U.S. agreed to ease sanctions on Iran in November in return for curbs on the country’s nuclear program.



“Negotiations between Iran and P5+1 may result in the lifting of the ban on petroleum products from Iran, which is certainly not ideal for countries like Saudi and Kuwait,” Kumar said. “Therefore, they are keen on long-term contracts with Asian buyers prior to the lifting of sanctions on Iran.”



India, which imported about 185 million metric tons (3.7 million barrels a day) of crude in the year ended March 2013, gets about 63 percent of its requirement from Middle East suppliers including Saudi Arabia, Kuwait, Iraq, Iran, the United Arab Emirates, Qatar, Oman and Yemen, according to data from India’s Ministry of Oil.



Saudi Arabia is the biggest supplier, followed by Iraq and Kuwait, together making up 43 percent of the South Asian economy’s total oil imports, according to the oil ministry.