Competitive prices for U.S. crude in an open arbitrage window to Asia have prompted Indian state and private refiners to accelerate buying of American oil in August, trade sources told Reuters on Friday.
A few weeks ago, rising prices of Middle Eastern grades opened the arbitrage window for West Texas Intermediate (WTI) to flow to Asia.
Key grades from the Middle East, such as Dubai and Murban, have seen their prices rise in recent weeks on the back of strong demand for high-sulfur crude in Asia and reduced shipments of Murban.
Moreover, the prices for Middle Eastern crudes going to Asia have jumped amid concerns that the hiked U.S. tariff on India due to its purchases of Russian oil could disrupt flows of Russia’s cheap crude.
Adding to all these factors is the falling freight cost for supertankers to ship crude from the U.S. Gulf Coast to key import centers in Asia, including Singapore, China, and India’s west coast.
As India’s purchases are driven by economics above all else, both state and private refiners bought more U.S. crude in August to take advantage of the lower freight costs and the open arbitrage window.
The top refiner, Indian Oil Corporation Ltd (IndianOil), has purchased in a tender 5 million barrels of WTI for October and November delivery, according to Reuters’ trade sources.
Another state-owned refiner, Bharat Petroleum Corporation Ltd (BPCL), has bought 2 million barrels of WTI, and private refiner Reliance Industries has purchased another 2 million barrels of WTI crude from Vitol, the sources told Reuters.
The higher purchases of U.S. crude could help reduce the huge trade deficit that the United States runs with India.
With difficult U.S.-India trade talks, the Trump Administration has singled out India to punish as a buyer of Russian crude.
Indian refiners, however, are not giving up on Russian crude—they continue to seek bargain prices and are expected to import more Russian oil in September compared to August levels as discounts are deepening amid Russia’s constrained refining capacity due to Ukrainian drone strikes.
By Tsvetana Paraskova for Oilprice.com
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