New Delhi — State-run Indian Oil Corp has cut purchases of Iranian oil as US sanctions on Tehran draw near, its chairman told S&P Global Platts in an exclusive interview on Thursday, but he added that entirely halting purchases from the Middle Eastern supplier may not be a realistic option for Indian buyers.
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While IOC has worked out a back-up plan to replace Iranian volumes if needed, Sanjiv Singh said a complete drying up of Iranian supplies could have a "destabilizing effect" on the global market.
"We strongly believe that if Iran goes out of the global market it will destabilize the market -- at least for some time. Personally, I don't think India can afford zero Iran supplies," he said in an exclusive interview.
IOC has booked Iranian volumes for November despite the winding down period ending next week, Singh said, but did not give details about the volumes.
"Of late we have reduced Iranian volumes slightly. Our November volumes will be similar to October, but before October we used to get a bit more from Iran. Our government is aware that we are going ahead with our November purchases from Iran, although we had an arrangement to fall back on," he added.
The US State Department said recently that it was in the process of considering potential sanctions relief for some countries that significantly cut their Iranian oil imports.
Asked whether India would get a waiver from Washington to continue importing Iranian crude, Singh said: "Let's see. It's not just IOC but it's the government of India which is involved closely with the issue."
Earlier Thursday, US Ambassador to India Kenneth Juster said Washington and New Delhi were still discussing a potential waiver allowing India to continue importing some Iranian crude.
Iranian crude exports to India have been robust in recent months. More than 600,000 b/d of Iranian crude left for India in September and volumes are expected to be around 500,000 b/d in October, cFlow data showed.
THE US ALTERNATIVE
With many Indian crude buyers looking to boost inflows from alternative sources, purchases from the US have been on the rise, jumping from an average of 29,000 b/d over January-April to 152,000 b/d in May and 261,000 b/d in June, a new monthly record. But volumes have come down in subsequent months.
Singh said the high price of US crudes compared with other origins had also reduced IOC's appetite in recent months.
"We have seen some wide fluctuations in US crude prices. US crude is still coming and we are keen to get more, but we have also modified our procurement conditions. Suppliers are free to offer on a FOB or CFR basis. We have done multiple-cargo contracts for three months. We can also look at slightly longer contracts in the future," he said.
Singh said that current global crude oil prices were inflated and added that prices could correct from current levels.
"The crude market demand and supply fundamentals haven't changed that much. The kind of price spike that we have seen recently -- more than $2/b a day -- I don't think there is any logic that justifies that. If you look at broad fundamentals, prices should slide to some extent," he said.
Singh added that high prices of crude had prompted IOC to start aggressively pushing a strategy on biofuels.
"Biofuels will be a key thing in our future strategy; in the next 4-5 years we are going to see a big change. That will help us arrest crude import growth," he said.
IOC currently processes about 80 million mt/year of crude, sourcing about 13 million mt from domestic production sources and importing the rest.
The twin blow from rising crude prices and a weakening domestic currency prompted India in early October to cut retail fuel prices, after aligning them with the global market a year earlier.
The move raised questions over whether New Delhi would resort to similar cuts as general elections draw near.
But Singh said that does not dilute the direction of energy policy reforms that the country has pursued in recent years.
"The high retail prices were causing some dissatisfaction to consumers. Therefore the government decided to cut the taxes. But there is absolutely no reason to believe that we are moving away from deregulation. The pricing freedom is still there and will remain," he said.
Singh said IOC will start supplying IMO-compliant bunker fuel from September 2019, months ahead of the International Maritime Organization's deadline in early 2020.
ICO will be aiming to supply more than 1 million mt/year of the fuel from its Haldia refinery on the east coast and Gujarat refinery on the west coast, mainly for export, he added.
"We are creating capacity to supply bunker fuel to meet IMO specifications. Today, we are not supplying but we have capacity to produce bunker fuel to meet IMO requirements," he said.
"We should be able to supply more than one 1 million mt per annum -- 100% for exports. The Haldia refinery has the capability and in the Gujarat refinery we are creating capability," he added.
The IMO's global fuel sulfur cap is set to drop from 3.5% to 0.5% at the start of 2020. Companies are pouring in millions of dollars into upgrading their shipping fleets as the deadline for cleaner bunker fuels inches closer.
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