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India's state-run refiners look to Latin America for inexpensive oil

29th January 2014

India's state-run refiners are turning to Latin American oil, benefitting from the cheap prices of crudes that have lost their market in the United States

Indian state-run refineries looking to Latin America for oil

India's state-run refiners are looking to Latin American oil, after improving their plants, thus taking on the benefit of cheap prices for crudes that have lost their market in the United States to shale oil, Indian oil industry insiders claim.

The state refiners, IOC, MRPL, BPCL and Hindustan Petroleum Corp, own around 55 per cent of India's 4.3 million bpd capacity.

Old crude oil trading routes are being altered as the United States cuts its dependence on imports through a boom in shale oil, forcing Latin American exporters to tap buyers as far away as China and India, which are markets growing enough to soak up their surplus supplies.

These Latin American crudes are often heavy grade which means that it does not need elaborate refining, it tends to produce higher quantities of low-value products such as fuel oil, used to run engines on ships.

For Indian buyers, these crudes offer the opportunity to earn a return on the billions of dollars spent in improving their plants, allowing profits to be boosted in a system which makes them sell products at state-capped prices.

India is currently the world's fourth-biggest buyer of crude and 80 per cent of its needs are met by imports, making cheap supplies crucial as its economy deals with power shortages and spends billions subsidising fuel for millions of its poor.

In the last few years, India has already had to find replacement crude for barrels lost when sanctions on nuclear operations hit Iran, who was at one time its second-largest supplier.

Much of the switching by state refiners has been to other Middle East sources, such as Saudi Arabia and Iraq, which are now the top two suppliers, causing Iran to fall to number six.

At the beginning of January, Mangalore Refinery and Petrochemicals (MRPL) became the first Indian refiner to buy Argentina's medium-sweet Escalante grade.

MRPL managing Director P.P. Upadhya revealed that "In 2007, we first thought of buying Latin American oil but we were not prepared."

He added, "I visited Venezuela. A team of officials visited some Latin American countries in 2011. They did not have spare oil. Now, the market dynamics have changed and I got my first high acid oil cargo from the region in a tender."


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