Indian Oil buys 2 million barrels of Iraqi crude at steep discount

Summary

• Indian Oil purchased 2 million barrels of Basrah Medium and Basrah Heavy, trade sources said.
• The cargo cleared at roughly $28 a barrel below the October Dubai benchmark, FOB.
• The seller was trader Mercuria, not Iraq's state marketer, the sources said.

The latest

India's largest refiner has picked up 2 million barrels of Iraqi crude at about $28 per barrel below the October Dubai benchmark, two trade sources told Reuters. The volume covers Basrah Medium and Basrah Heavy grades on a free-on-board basis, the sources said, and was sold by trading house Mercuria rather than directly by Baghdad.

Details

• The volume: Indian Oil Corp bought 2 million barrels split across two Iraqi grades, Basrah Medium and Basrah Heavy, two trade sources told Reuters. The purchase was concluded on a free-on-board basis, meaning the buyer assumes shipping and insurance costs from the loading port onward.
• The price: The cargo was priced at a discount of about $28 a barrel to the October Dubai benchmark, according to the same sources. Dubai is the reference grade against which most Middle Eastern crude sold into Asia is priced, so the gap is measured against that month's average rather than a fixed dollar figure.
• The seller: The oil came from trading house Mercuria, the sources said, rather than from Iraq's state oil marketing company directly. Term and spot Iraqi barrels frequently change hands in the trading market before reaching a refiner, and the sources did not identify how Mercuria acquired the cargo.
• The timing: Indian Oil was seeking Iraqi crude for lifting between October 21 and 31, the sources said, placing the cargo in the final loading window of the month. The tender was the mechanism used to source the barrels, a standard route for the state refiner's spot purchases.
• The buyer: Indian Oil Corp is India's largest refiner and a state-owned company, making its spot tenders a closely watched signal of where Asian demand is pulling Middle Eastern grades. The company did not comment on the transaction.
• Disclosure limits: Companies do not typically comment on tender-related information, Reuters noted, and neither Indian Oil nor Mercuria confirmed the terms. The reporting rests on two trade sources who spoke on Monday and were not named.
• The grades: Basrah Medium and Basrah Heavy are the denser, higher-sulphur end of Iraq's export slate, and both routinely trade at wider discounts to Dubai than the lighter Basrah grade. Refiners with complex processing units buy them to capture the margin that heavier barrels offer.
• The market read: Spot tender results of this kind function as a live price marker for Iraqi barrels moving into India, one of the largest destinations for Basrah crude. A single cargo does not set the term price Baghdad publishes each month, but traders track it as an indicator of where discounts are settling.

Background

India is among the biggest buyers of Iraqi crude, and Basrah grades compete there against barrels from other Gulf producers as well as discounted supply from elsewhere. Spot tenders run alongside longer-term contracts and are used to fill gaps in a refiner's monthly slate.

Between the lines

The discount level and the identity of the seller are the two reportable signals here. That a trading house rather than Baghdad's marketer supplied the cargo shows Iraqi barrels moving through the intermediary market before reaching the refinery gate, while a spot tender priced against October Dubai gives traders a reference point for where Basrah Medium and Heavy are clearing into India this month.

What's next

Watch the October 21–31 loading window for confirmation the barrels move, Iraq's next official selling prices for Basrah grades, and further Indian Oil spot tenders that would show whether the discount level holds.

Source: Reuters via Zawya