India’s BORL bags its first ever US crude as arbitrage window wide open
Bharat Oman Refineries Ltd. made its first ever purchase of US Mars crude, the company said Wednesday, in a deal that adds to the fast growing list of North America-India arbitrage trade flows, as more South Asian end-users take advantage of US crude pricing benchmark WTI’s widening discount to Brent and Dubai prices. BORL struck its maiden deal for the medium sour US grade by contracting 1 million barrels for delivery during the third week of November, company officials said.
India’s BORL makes first ever purchase of Mars crude for Nov delivery
Deal adds to growing list of US-India arbitrage flows
US crude seen price competitive amid weak WTI against Brent, Dubai
“We have clinched the maiden deal for a US sour crude variety,” said one company official, without giving any price details, citing commercial reasons. Global trader Trafigura will deliver the contracted volume of Mars crude from the US Gulf of Mexico to BORL’s storage terminal at Vadinar in the western state of Gujarat.
The latest deal comes on the heels of a recent string of North America-India arbitrage trade flows, as the South Asian country’s appetite for North American grades picks up sharply after a visit by Prime Minister Narendra Modi to the US in June, where both countries explored the possibility of boosting cooperation in the energy sector.
In July, Indian Oil Corp. signed an offtake deal for a VLCC cargo of 1.6 million barrels of Mars grade and 400,000 barrels of Western Canadian Select. Prior to that, in February, the US exported 1.468 million barrels of crude to India, US Energy Information Administration data show.
Hindustan Petroleum Corp. Ltd, another state-run refiner, said previously that the company also plans to import US crude in the near future for its Vizag refinery in south India.
Mars is a medium sour crude with a gravity of around 28.8 API and 1.8% sulfur content by weight. The grade is part of various crude blends that make up the Louisiana Offshore Oil Port Sour benchmark in the US.
LOOP Sour is a blend of Mars, Poseidon, Saudi Arab Medium, Basrah Light and Kuwait crudes stored at the Louisiana Offshore Oil Port terminal near Galliano, Louisiana.
WTI WEAKNESS VS BRENT, DUBAI
Regional traders said India’s fast-growing interest in US crude grades in recent months comes as a small surprise, with weakness in WTI against its European and Middle Eastern crude benchmarks making various US crude grades competitively priced for Asian buyers.
“Brent and Dubai complex look very expensive lately so it’s natural for [Asian] buyers to find some US crude attractive [in terms of price],” said a Singapore-based crude and condensate trader.
“WTI has been very weak compared to Brent and Dubai…arbitrage is very much open,” the trader added.
The spread between front-month Dubai crude swaps and same-month WTI swaps first flipped into positive territory on January 4, when it was assessed at 4 cents/b. The last time before then that the spread was in positive territory was on October 28, 2015, when it was assessed at 48 cents/b, Platts data showed.
The front-month Middle East crude benchmark swap has continued to command a premium to its US counterpart for most of this year, with the spread averaging $2.04/b so far in the third quarter, $1.29/b in Q2 and $0.51/b in Q1, against an average discount of $1.62/b in Q4 last year.
A weaker WTI versus Dubai spread typically makes various North American crude grades priced against WTI more competitive.
At the same time, WTI/Brent futures spreads have been falling sharply over the past several weeks, with NYMEX November WTI crude futures seen trading at a wide discount of $5.02/b to the same-month ICE Brent crude futures at 0830 GMT in Singapore Tuesday.
Indian end-users typically procure various Middle Eastern sour crudes that are mostly priced against Platts Dubai assessments. Asia’s second-biggest oil consumer depends on OPEC countries for 86% of its oil imports, with Iraq, Saudi Arabia, Iran, and UAE major suppliers.
Indian refiners also source hefty volumes of light sweet crude feedstocks from West Africa, especially Nigeria’s Qua Iboe and Bonny Light, which are mostly priced against Platts Dated Brent.
BORL, a 50:50 joint venture between state-run BPCL and Oman Oil, runs a 6 million mt/year, or 120,000 b/d, refinery at Bina in the central state of Madhya Pradesh.
The refinery, with a complexity factor of 9.1, is equipped to service the ever-increasing fuel demands of northern and central India. The refinery gets uninterrupted crude supply by a cross-country pipeline from Vadinar to Bina.
The refinery has the capability to process 100% sour crude varieties.
Buying more quantities of US grades would depend primarily on commercial considerations based on market price, BORL officials said.